Concept explainers
(a)
Interpretation:Best Location needs to be determined using location analysis technique with the help of given data
Concept Introduction: The location analysis method helps in determining the optimal location to run a business efficiently.
(a)
Explanation of Solution
Given Information:
CP Location Analysis Data | Location 1 | Location 2 | Location 3 | Location 4 | Location 5 |
Fixed Costs | $ 75,000 | $ 110,000 | $ 95,000 | $ 125,000 | $110,000 |
Direct Material Cost/Unit | $ 4.14 | $ 4.65 | $ 5.05 | $ 4.50 | $ 4.50 |
Direct Labor Cost /Unit | $ 12.45 | $13.80 | $ 11.80 | $ 15.60 | $ 13.75 |
Overhead/unit | $ 2.25 | $ 2.60 | $ 1.95 | $ 2.75 | $ 2.10 |
Transportation Cost/Unit | $0.5 | $ 0.65 | $ 0.30 | $0.83 | $0.67 |
Estimated Annual Production: 30,000 units
The formula for calculating Direct Material cost, Direct Labor cost, Overhead Cost and
Transportation Cost is as follows:
Direct Material Cost = (Direct Material Cost/unit) x Estimated Annual Production
Direct Labor Cost = (Direct Labor Cost/unit) x Estimated Annual Production
Overhead Cost = (Overhead Cost/unit) x Estimated Annual Production
Transportation Cost = (Transportation Cost/unit) x Estimated Annual Production
Associated Costs | Location 1 | Location 2 | Location 3 | Location 4 | Location 5 |
Fixed Costs | $ 75,000 | $ 110,000 | $ 95,000 | $ 125,000 | $110,000 |
Direct Material Cost | $ 124,200 | $ 139,500 | $ 1,51,500 | $ 135,000 | $ 135,000 |
Direct Labor Cost | $ 373,500 | $ 414,000 | $ 354,000 | $ 468,000 | $ 412,500 |
Overhead | $ 67,500 | $ 78,000 | $ 58,500 | $ 82,500 | $ 63,000 |
Transportation Cost | $ 15,000 | $ 19,500 | $ 9,000 | $ 24,900 | $ 20,100 |
Total | $ 655,200 | $ 761,000 | $ 668,000 | $ 835,400 | $ 740,600 |
As per data calculated above, Location 1 provides the least cost.
(b)
Interpretation:Best Location needs to be determined using location analysis technique with the help of given data
Concept Introduction: The location analysis method helps in determining the optimal location to run a business efficiently.
(b)
Explanation of Solution
Associated Costs | Location 1 | Location 2 | Location 3 | Location 4 | Location 5 |
Fixed Costs | $ 75,000 | $ 110,000 | $ 95,000 | $ 125,000 | $110,000 |
Direct Material Cost | $ 124,200 | $ 139,500 | $ 1,51,500 | $ 135,000 | $ 135,000 |
Direct Labor Cost | $ 373,500 | $ 414,000 | $ 354,000 | $ 468,000 | $ 412,500 |
Overhead | $ 67,500 | $ 78,000 | $ 58,500 | $ 82,500 | $ 63,000 |
Transportation Cost | $ 15,000 | $ 19,500 | $ 9,000 | $ 24,900 | $ 20,100 |
Total | $ 655,200 | $ 761,000 | $ 668,000 | $ 835,400 | $ 740,600 |
As per the data calculated above, it can be clearly seen that the order of locations on basis of the lower to higher cost is Location 1 < Location 3 < Location 5 < Location 2 < Location 4.
The total cost associated with Location 2,4 and 5 is considerably high than location 1 and 3.
An appropriate range will be calculated below by comparing the Location 1 and 3.
Let’s assume the demand rate be x.
Total variable cost associated with Location 1 is = $ 19.34
Total Variable cost associated with Location 3 is = $ 19.10
So, the equation to calculate appropriate quantity will be:
By solving above equation, we get
It means that if demand rate is less than 83,333 units, then location 1 will be preferred and otherwise location 3 is chosen if demand exceeds 83,333 units.
Want to see more full solutions like this?
- The fixed and variable costs for four potential plant sites for Brent Snyder's Ski Supplies are shown here: a) Graph the total-cost lines for the four potential sites.b) Over what range of annual volume is each location the preferable one (that with lowest expected cost)?c) If expected volume of the ski equipment is 5,000 units, which location would you recommend?arrow_forwardA supply chain manager faced with choosing among four possible locations has assessed each location according to the following criteria, where the weights reflect the importance of the criteria. 2 3 4 -Select- is the best location and -Select- -Select- Location 1 Location 2 Location 3 Location 4 Criteria Raw material availability Infrastructure Transportation costs Using this information, determine the best and the worst location. Round your answers to two decimal places. Location Total Points 1 is the worst location. Labor relations Quality of life Weight 0.11 0.13 0.23 0.23 0.30 1 VG G P G G W Location 2 OK OK OK P VG 3 OK VG OK VG G VG Very good 5 pts; G = Good 4 pts; OK = Acceptable 3 pts; P = Poor 1 pt. 4 OK OK G VG OKarrow_forwardAn operations manager has narrowed down the search for a new King Kola plant to three locations. Fixed and variable costs follow. Location Fixed Cost Variable Cost A $100,000 $10 B $150,000 $7 C $200,000 $5 Plot the total cost curves in the chart provided above and identify the range over which each location would be best. Use break-even analysis to calculate exactly the break-even quantity that defines each range.arrow_forward
- Evaluating location alternatives by comparing their composite(weighted-average) scores involvesa) factor-rating analysis.b) cost–volume analysis.c) transportation model analysis.d) linear regression analysis.e) crossover analysis.arrow_forwardA firm is considering three different locations in which to build a factory. The costs associated with each location are given below. Location A B C Fixed Costs 500 700 900 Variable costs per unit 10 6 4 Plot the crossover chart for the locations. What level of output will each location be preferred? Write an equation to represent the costs for each location. Use algebra to determine the crossover points.arrow_forwardEvaluating location alternatives by comparing their composite(weighted-average) scores involvesa) factor-rating analysis.b) cost-volume analysis.c) transportation model analysis.d) linear regression analysis.c) crossover analysis.arrow_forward
- Location planning is part of strategic planning, briefly explain why?arrow_forwardThe Davis national drugstore chain prefers to operate one outlet in a town that has four major market segments. The number of potential customers in each segment, along with the coordinates are as follows: Location Market Coordinates Number of Segment x y Customers 1 5 22 2,200 2 17 20 300 3 5 3 1,400 4 10 3 3,000 Find the best location using the Center of Gravity Excel template. Round your answers to two decimal places. Cx: ____________Cy: ______________arrow_forwardFind examples of good and bad location decisionsarrow_forward
- Location decisions represent a key part of the strategic planning process of virtually every organization. Highlight any four (4) reasons/circumstances that may call for new location decisions in organizations. Outline any three (3) aspects that differentiate a manufacturing location from a service location decisions.arrow_forwardAccel Express, Inc., collected the following information on where to locate a warehouse (1 = poor, 10 = excellent): Location Score Location Factor Factor Weight A B Construction costs 10 8 5 Utilities available 10 7 7 Business services 10 4 7 Real estate cost 20 7 4 Quality of life 20 4 8 Transportation 30 7 6 a. Which location, A or B, should be chosen on the basis of the total weighted score?b. If the factors were weighted equally, would the choice change?arrow_forwardWhat would be the important location factors that McDonald’s might consider before opening a new restaurant?arrow_forward
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,