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Company 1 is a bike supplier. They have had an uptick in demand recently. Company 1 needs more space for facilities and inventory. They are considering two different locations. If they locates to Seattle (1st location), shipping costs would be lower as suppliers are closer. However, most of customers are in Denver area (2nd location), and so they could sell more bikes if they locate here. They would achieve the same per-unit revenue of $187 no matter where they located. |
| Seattle | Denver | |||
| Annual.fixed.costs ($ millions) | $ | 1.1 | $ | 1.2 |
| Variable.cost.per.unit | $ | 31 | $ | 45 |
| Expected.annual.demand.(units) | 9,350 | 11,675 | ||
Where should they locate to maximize profit? Which location would produce the greater gross profit?
| Seattle | Denver | |
| Sales | (9350 x $187) = $ | (11675 x $187) = $ |
| Less: Variable cost | (9350 x $31) = $ | (11675 x $45) = $ |
| Contribution margin | $1,458,600 | $1,657,850 |
| Less: Fixed cost | 1100000 | 1200000 |
| Net Profit | $358,600 | $457,850 |
They should locate to Denver to maximize profit. Denver would produce the greater gross profit.
Company 1 is a bike supplier. They have had an uptick in demand recently. Company 1...