solution

Use the following information to answer questions 35-37

A newly formed BC company produces wooden salad bowl sets made from locally sourced wood. There are two alternatives under consideration: locate near the major raw materials or locate near their major customers. Locating near the raw materials will result in lower fixed and variable costs than locating near the customer market. However, because the local market tends to favour local suppliers, the owners believe there would be a loss in sales volume. The salad bowl sets sell for $185 each.

Near raw materials

Annual fixed costs ($ millions) = $1.20 unit

Variable cost per unit = $35

Expected annual demand (units) = 6700

Near customers

Annual fixed costs ($ millions) = $1.35 unit

Variable cost per unit = $43

Expected annual demand (units) = 10,700

Determine the profit for the Near Raw Materials option.