# Problem 8-1 A newly formed firm must decide on a plant location. There are two alternatives 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 than 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 \$175 in either case. Omaha Kansas City Annual fixed costs (\$ millions) \$ 1.0 \$ 1.1 Variable cost per unit \$ 25 \$ 40 Expected annual demand (units) 9,650 10,250 Using the above information, determine which location would produce the greater profit. (Omit the “\$” sign in your response.) (Click to select) Omaha Kansas City would produce the greater gross profit of \$ .

In case of omaha

Total cost = 1000000+ (25*9650) = 1241250

Revenue = 175*9650 = 1688750

Profit = 1688750- 1241250 = \$ 447500

In case of Kansa

Total cost = 1100000 +(40*10250) = 1510000

Revenue = 175* 10250 = 1793750

Profit = 1793750 – 1510000 = \$ 283750

Omaha will produce greater profit by \$( 447500 – 283750) = \$163750

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