Question

A firm that has recently experienced an enormous growth rate is seeking to lease a small plant in Memphis, TN; Biloxi, MS; or Birmingham, AL. Prepare an economic analysis of the three locations given the following information: Annual costs for building, equipment, and administration would be $49,000 for Memphis, $59,000 for Biloxi, and $94,000 for Birmingham. Labor and materials are expected to be $9 per unit in Memphis, $3 per unit in Biloxi, and $3 per unit in Birmingham. The Memphis location would increase system transportation costs by $48,000 per year, the Biloxi location by $58,500 per year, and the Birmingham location by $24,400 per year. Expected annual volume is 13,400 units.

Answer 1

The cheapest alternative is Biloxi

Step-by-step explanation:

Memphis:

Annual fixed costs $49,000

Annual production costs $9 x 13,400 = $120,600

Annual transportation costs $48,000

total additional costs = $217,600

Biloxi:

Annual fixed costs $59,000

Annual production costs $3 x 13,400 = $40,200

Annual transportation costs $58,500

total additional costs = $157,700

Birmingham:

Annual fixed costs $94,000

Annual production costs $3 x 13,400 = $40,200

Annual transportation costs $24,400

total additional costs = $158,600