1. A newly formed firm must decide on a plant location. There are two under consideration:locate near the major raw materials or locate near the major customers. Locating near theraw materials will result in lower fixed and variable costs compared to locating near themarket, but the owners believe there would be a loss in sales volume because customerstend to favor local suppliers. Revenue per unit will be $185 in either case. Using thefollowing information, determine which location would produce the greater profit.OmahaKansas CityOmahaKansas CityRevenue per unitVariable cost per unitAnnual Fixed CostExpected annualdemand (units) (Q)Annual fixed costs ($millions)Variable Cost per unitExpected annual Demand(units)$1.2$368,000$1.4$4712,000OmahaKansas CityRevenue per unitVariable cost per unitAnnual Fixed CostExpected annualdemand (units) (Q)* Note it might help to set up your table like the one below:OmahaKansas CityRevenue per unitVariable cost per unitAnnual Fixed CostExpected annualdemand (units) (Q)

A firm is required to analyze various options for making the decision about its plant location.

1. A newly formed firm must decide on a plant location. There are two under consideration: locate near the major raw materials or locate near the major customers. Locating near the raw materials will result in lower fixed and variable costs compared to locating near the market, but the owners believe there would be a loss in sales volume because customers tend to favor local suppliers. Revenue per unit will be $185 in either case. Using the following information, determine which location would produce the greater profit.

1. A newly formed firm must decide on a plant location. There are two under consideration: locate near the major raw materials or locate near the major customers. Locating near the raw materials will result in lower fixed and variable costs compared to locating near the market, but the owners believe there would be a loss in sales volume because customers tend to favor local suppliers. Revenue per unit will be $185 in either case. Using the following information, determine which location would produce the greater profit.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

1. A newly formed firm must decide on a plant location. There are two under consideration:
locate near the major raw materials or locate near the major customers. Locating near the
raw materials will result in lower fixed and variable costs compared to locating near the
market, but the owners believe there would be a loss in sales volume because customers
tend to favor local suppliers. Revenue per unit will be $185 in either case. Using the
following information, determine which location would produce the greater profit.
Omaha
Kansas City
Omaha
Kansas City
Revenue per unit
Variable cost per unit
Annual Fixed Cost
Expected annual
demand (units) (Q)
Annual fixed costs ($millions)
Variable Cost per unit
Expected annual Demand(units)
$1.2
$36
8,000
$1.4
$47
12,000
Omaha
Kansas City
Revenue per unit
Variable cost per unit
Annual Fixed Cost
Expected annual
demand (units) (Q)
* Note it might help to set up your table like the one below:
Omaha
Kansas City
Revenue per unit
Variable cost per unit
Annual Fixed Cost
Expected annual
demand (units) (Q)

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