A newly formed firm must decide on a plant location. There are two alternatives under consideration: locate near the major raw materials or locate near the major customers. Locating near the raw materials will result in lower fixed and variable costs compared to locating near the market, but the owners believe there would the raw materials will result in lower fixed and variable costs compared to locating near the market, but the owners believe there would be a loss in sales volume because customers tend to favor local suppliers. Revenue per unit will be $189 in either case.

Omaha Kansas City Annual fixed costs ($ millions) $ 1.2 $ 1.1 Variable cost per unit $ 39 $ 54 Expected annual demand (units) 10,350 10,950

Using the above information, determine which location would produce the greater profit.

Kansas City would produce the greater gross profit of ( )?

2. The owner of Genuine Subs, Inc., hopes to expand the present operation by adding one new outlet. She has studied three locations. Each would have the same labor and materials costs (food, serving containers, napkins, etc.) of $2.30 per sandwich. Sandwiches sell for $3.10 each in all locations. Rent and equipment costs would be $5,600 per month for location A, $5,800 per month for location B, and $6,050 per month for location C.

Determine the volume necessary at each location to realize a monthly profit of $11,000

Location Monthly volume

a.

b.

c.

If expected sales at A, B, and C are 25,000 per month, 22,000 per month, and 24,000 per month, respectively, calculate the profit of the each locations?

Location Monthly profits

a.

b.

c.

3. A firm that has recently experienced an enormous growth rate is seeking to lease a small plant in Memphis, TN; Biloxi, MS; or Birmingham, AL.Prepare an economic analysis of the three locations given the following information: Annual costs for building, equipment, and administration would be $49,000 for Memphis, $59,000 for Biloxi, and $94,000 for Birmingham. Labor and materials are expected to be $9 per unit in Memphis, $3 per unit in Biloxi, and $3 per unit in Birmingham. The Memphis location would increase system transportation costs by $48,000 per year, the Biloxi location by $58,500 per year, and the Birmingham location by $24,400 per year. Expected annual volume is 13,400 units.

Total cost

Memphis

Biloxi

Birmingham

4. Factor Weight East #1 East #2 West Initial cost 10 130 110 100 Traffic 10 40 60 55 Maintenance 6 20 25 25 Dock space 6 14 16 25 Neighborhood 4 9 9 13

Using the above factor ratings, calculate the composite score for each location.

Location composite score

East 1

East 2

west

5. A manager received an analysis of several cities being considered for a new office complex. The data (10 points maximum) are as follows:

Factor A B C Business services 6 6 6 Community services 4 6 7 Real estate cost 4 8 7 Construction costs 4 7 6 Cost of living 2 7 8 Taxes 4 5 4 Transportation 5 7 8

If the manager weights the factors equally, how would the locations stack up in terms of their composite factor rating scores?

A /7

B /7

C /7

If business services and construction costs are given weights that are double the weights of the other factors, how would the locations stack up?

A /9

B /9

C /9

6. A company that handles hazardous waste wants to minimize the shipping cost for shipments to a disposal center from five receiving stations it operates. Given the locations of the receiving stations and the volumes to be shipped daily, determine the location of the disposal center.

Location of Processing Station, (x, y) Volume, Tons per Day 5,5 16 4,6 5 3,7 16 2,3 21 5,7 35

x= , y=