Which location has the lowest total cost estimate

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Reference no: EM131931586

QUESTION - Location Selection

A lumber retailer is evaluating five possible locations to build a new store.

As the retailer carries different types of lumber, a selling unit is understood as a composite unit of lumber. In addition the selling price of one unit is an average price, which is dependent on the lumber composition.

The accounting department provides some estimates as in the table. These estimates are based on multiple location characteristics including transportation system, property cost, utilities cost, labor cost, population, income distribution, construction demand, competitors, etc.

For simplicity, assume that the chain's manager does not consider other costs or revenues.

Data	Location 1	Location 2	Location 3	Location 4	Location 5
Fixed costs ($)	109,000	82,000	77,000	93,000	88,000
Merchandise cost/unit ($)	5.14	6.56	4.73	5.38	4.92
Direct labor cost/unit ($)	8.45	9.83	7.12	8.79	7.19
Overhead/unit ($)	1.75	1.64	1.72	1.69	1.59
Transportation cost/unit ($)	0.43	0.41	0.37	0.39	0.45
Sales volume (units)	580,000	501,000	530,000	460,000	490,000
Selling price/unit ($)	20.00	19.70	19.80	19.50	18.70

(a) Which location has the lowest total cost estimate?
(b) Which location has the highest sales revenue estimate?
(c) Which location should the retailer choose to build a new store?

Reference no: EM131931586

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