Operations Management (McGraw-Hill Series in Operations and Decision Sciences)
Operations Management (McGraw-Hill Series in Operations and Decision Sciences)
12th Edition
ISBN: 9780078024108
Author: William J Stevenson
Publisher: McGraw-Hill Education
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Chapter 8, Problem 2P

a)

Summary Introduction

To determine: The monthly volume at each location.

Introduction: Location is where a firm chooses to site its operations. Location decisions can large effects on expenses and incomes. Location choices are normally quite imperative to both substantial and private companies. The area choice directly affects an operation's expenses and also its capacity to serve clients.

a)

Expert Solution
Check Mark

Answer to Problem 2P

The monthly volume of location A is 16,853.93 units, location B is 17,415.73 units and location C is 17,752.81 units.

Explanation of Solution

Given Information:

It is given that the labor and material costs are $1.76 per sandwich, the cost of sandwich is $2.65. The rent and equipment cost for Location A is$5,000, Location B is $5,500 and Location C is $5,800. The realized monthly profit is $10,000

Calculate the monthly volume at each location

It is calculated by adding realized profit with fixed costs and dividing the result with rate per unit subtracted by variable costs.

MonthlyVolume(Q)LocationA=[(RealizedProfit+FixedCosts)(RateperunitVariableCosts)]=[($10,000+$5,000)($2.65$1.76)]=[$15,000$0.89]=16,853.93units

MonthlyVolume(Q)LocationB=[(RealizedProfit+FixedCosts)(RateperunitVariableCosts)]=[($10,000+$5,500)($2.65$1.76)]=[$15,500$0.89]=17,415.73units

MonthlyVolume(Q)LocationC=[(RealizedProfit+FixedCosts)(RateperunitVariableCosts)]=[($10,000+$5,800)($2.65$1.76)]=[$15,800$0.89]=17,752.81units

Hence, the monthly volume of location A is 16,853.93 units, location B is 17,415.73 units and location C is 17,752.81 units.

b)

Summary Introduction

To determine: The location that yield with greatest profits.

Introduction: Location is where a firm chooses to site its operations. Location decisions can large effects on expenses and incomes. Location choices are normally quite imperative to both substantial and private companies. The area choice directly affects an operation's expenses and also its capacity to serve clients.

b)

Expert Solution
Check Mark

Answer to Problem 2P

“Location C” yields greatest profits.

Explanation of Solution

Given Information:

It is given that the labor and material costs are $1.76 per sandwich, the cost of sandwich is $2.65. The rent and equipment cost for Location A is $5,000, Location B is $5,500 and Location C is $5,800. The expected sales for Location A are $21,000, Location B is $22,000 and Location C is $23,000.

Calculate the location that yield with greatest profits.

It is calculated by subtracting the rate per unit with variable costs and multiplying the result with expected sales and subtracting the whole with the fixed costs.

ExpectedProfitLocationA=[(ExpectedSales×(RateperunitVariableCost))FixedCosts]=[($21,000×($2.65$1.76))$5,000]=[($21,000×$0.89)$5,000]=[$18,690$5,000]

=$13,690

ExpectedProfitLocation B=[(ExpectedSales×(RateperunitVariableCost))FixedCosts]=[($22,000×($2.65$1.76))$5,500]=[($22,000×$0.89)$5,500]=[$19,580$5,500]

=$14,080

ExpectedProfitLocationC=[(ExpectedSales×(RateperunitVariableCost))FixedCosts]=[($23,000×($2.65$1.76))$5,800]=[($23,000×$0.89)$5,800]=[$20,470$5,800]

=$14,670

Hence, location C yields greatest profits.

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