Name And Period Ap Human Geography Key. Peele Have A C

Name And Period Ap Human Geographykey Peele Have A C

Key & Peele have a contract for 10,000 cowbells and are considering various locations for production to maximize profit. They need to analyze different scenarios to determine the least-cost production location by calculating various costs including facility, transportation (iron, market, disposal), labor, tariffs, and environmental regulations. The goal is to find the minimum amount they must charge per cowbell to break even, based on the total costs in each scenario.

Paper For Above instruction

The decision of where to locate production facilities significantly impacts the overall profitability of manufacturing operations. Key & Peele's plan to produce 10,000 cowbells involves assessing various costs associated with different locations, including initial facility costs, transportation expenses, labor costs, environmental disposal fees, tariffs, and other regulatory considerations. This analysis allows them to determine the minimum price they must set per cowbell to cover all expenses and avoid losses, ultimately guiding their strategic location choice to maximize profitability.

Scenario 1: Gary, Indiana

In Gary, Indiana, the proximity to iron ore deposits reduces transportation costs but increases land and facility expenses. The initial facility costs are $1 million, which, when divided across 10,000 cowbells, results in a base facility cost of $100 per cowbell (A). The transportation cost of iron ore over 50 miles is calculated based on a flat rate plus per-mile charges: $100 plus $0.10 per mile per truckload. With 10 truckloads, this totals $1000, equating to $0.10 per cowbell (B). Similarly, market transportation over 1,000 miles costs $200 flat plus $0.10 per mile for 10 truckloads, totaling $1,200 or $0.12 per cowbell (C). Labor costs are based on a rate of $6 per hour with 1,000 hours needed, amounting to $6,000 total labor cost, which divided by 10,000 yields $0.60 per cowbell (D). The disposal of hydrochloric acid costs $100,000, translating to $10 per cowbell (F). Since the cowbells are made in the U.S., tariffs are not applicable, and the environmental regulation cost is covered under disposal. Summing these break-even costs yields a total minimum charge per cowbell: $100 + $0.10 + $0.12 + $0.60 + $10 = $110.82 (G). This represents the lowest price per cowbell to cover all expenses in Gary, Indiana.

Scenario 2: Seattle, Washington

In Seattle, the production facility is available at no cost, eliminating facility expenses. Transportation of iron is by train for 1,000 miles, using 10 train cars at $0.03 per mile plus a flat fee of $50, totaling $330 (A). The market is 20 miles away, with transportation costing $0.10 per mile and a flat fee of $200, which totals $2 (B). Labor costs are higher here at $15 per hour with workers needing 800 hours, amounting to $12,000 or $1.20 per cowbell (C). Disposal costs include federal regulations at $100,000, plus additional environmental fees of $20,000, summing to $120,000, which results in $12 per cowbell (F). Since the product is made in the U.S., tariffs are not applicable. Summing all these costs yields a minimum charge of $0 + $0.033 + $0.02 + $1.20 + $12 = $13.273 (G). This indicates a higher minimum selling price due to increased labor and disposal costs in Seattle.

Scenario 3: Tecate, Mexico

In Tecate, Mexico, the facility cost is $5,000, translating to $0.50 per cowbell (A). Transporting iron over 2,000 miles with 10 truckloads costs $0.10 per mile plus a flat fee of $500, totaling $2,500 or $0.25 per cowbell (B). Shipping via container costs $50 per container for 10 containers, totaling $500, and the subsequent truck transport in the U.S. adds an additional $0.50 per cowbell (C). Labor costs are $3 per hour with an estimated 1,000 hours needed, totaling $3,000 or $0.30 per cowbell (D). Since Mexico is part of NAFTA, there are no tariffs, but disposal costs of hydrochloric acid are about $2,000, adding $0.20 per cowbell (F). The aggregate of these costs amounts to $0.50 + $0.25 + $0.50 + $0.30 + $0.20 = $1.95 per cowbell (G). This low-cost scenario emphasizes the advantages of manufacturing in Mexico based on reduced facility and labor costs.

Scenario 4: Guangzhou, China

In Guangzhou, China, using a local facility costs $1,000, which is $0.10 per cowbell (A). Transportation of iron over a short distance of 100 miles at $0.02 per mile for 20 trucks adds $40 or $0.004 per cowbell (B). Shipping via container costs $50 per container for 10 containers, totaling $500, plus $0.50 per cowbell for trucking within the U.S. (C). Labor in China is remarkably cheap at $0.50 per hour, with 1,000 hours needed, totaling $500 or $0.05 per cowbell (D). A tariff of $1.50 per cowbell applies because the product is made in China (E). Hydrochloric acid disposal costs are assumed negligible (F). Summing costs: $0.10 + $0.004 + $0.05 + $1.50 = $1.654 per cowbell (G). This scenario demonstrates the cost advantages of manufacturing in China despite tariffs.

Conclusion

By comparing the total minimum costs per cowbell across the four scenarios, Key & Peele can make an informed decision about the optimal location based on production costs. Each scenario's total cost reflects different advantages and disadvantages, such as proximity to raw materials, labor costs, environmental regulations, tariffs, and infrastructure. The lowest total break-even cost in Scenario 3 (Mexico) suggests that manufacturing there offers the most cost-effective option, enabling the company to set competitive prices and maximize profit margins, while also considering quality, logistics, and regulatory compliance.

References

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