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The management at GreenTech Ltd need to expand the capacity of their organisation. They are considering three possible locations for a new water-meter manufacturing plant. Using the data provide in Table Q3c, calculate the most economical location for an expected volume of 2,000 units per year and a selling price of euro 120 per water meter.
Expert Answer
The most economical location would be the one that generates maximum profit
Location Ireland : –
Profit = Total Revenue – Total cost
Total Revenue = Price x Quantity
Total Revenue = £ 120 x 2000 units
Total Revenue = £ 240,000
Total cost = Fixed cost + variable cost
Total cost = £ 30,000 + £ 75 x 2000
Total cost = £ 180,000
Profit = £ 240,000 – £ 180,000
Profit = £ 60,000
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Location Poland
Profit = £ 240,000 – ( 60,000 + 45 x 2000 )
Profit = £ 90,000
Location China
Profit = £ 240,000 – ( 110,000 + 25 x 2000)
Profit = £ 80,000
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The most economical location is Poland because the profit from this location is highest i.e £ 90,000
