your question is incomplete, as some important values are missing. Please let me assume your question to be.
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 sup- pliers. Revenue per unit will be $185 in either case. Using the following information, determine which location would produce the greater profit.
Assuming Omaha to be the site of the major raw material, and Kansas to be the site of major customers.
Annual fixed cost :
Omaha= $1,000,000
Kansas= $1,200,000
Variable cost per unit:
Omaha= $30
Kansas= $45
Expected annual demand:
Omaha= 9,925
Kansas= 10,225
ANSWER:
The plant should be located at the place closer to the major raw material
EXPLANATION:
Profit = ( Revenue cost - variable cost) Quantity - annual fixed cost
STEP1: FIND PROFIT FOR KANSAS:
Profit = (185 - 45)10,225 - 1,200,000 = 1,431,500 - 1,200,00 = $231,500
If the plant is located close the major customers the annual profit will be $231,500
STEP2: FIND PROFIT FOR OMAHA:
Profit = (185 - 30)9,925 - 1,000,000
= 1,538,375 - 1,000,000 = $538,375
If the plant is located close to the major raw material the annual profit will be $538,375
BECAUSE THE ANNUAL PROFIT OF THE PLANT BEING CLOSE TO THE MAJOR RAW MATERIAL IS HIGHER, THEREFORE IT IS ADVISABLE TO LOVATE THE PLANT CLOSE TO THE MAJOR RAW MATERIAL