QUESTION $5(20$ Marks$)$

A recent study conducted by Ewert Kleynhans and Ernst Drewes, titled 'The Influence of Location on the Efficiency of

Manufacturers in South Africa,$\text{'}$ highlighted the critical role of locational decisions in the manufacturing sector. The study

emphasised that entrepreneurs and firms must carefully consider the location of a new plant, as well as locational

decisions$$ implications for industrial development policies formulated by both government and industry stakeholders.

$5\mathrm{.}1.$ Examine the information provided below and answer the following question.

INFORMATION

NLM Enterprises $($NLME$),$ a South African manufacturing firm aiming to expand its presence in the East African regional

market, is presently evaluating potential locations in Kenya, Ethiopia, Tanzania, and Uganda for the establishment of a

new manufacturing plant dedicated to its East African operations. This evaluation follows an extensive preliminary

assessment of all countries in East Africa.

The management team tasked with making the decision regarding the final selection has prepared a comprehensive

comparative analysis, detailed in the table below:

Average annual

sectoral costs, R

As percentage of annual sectoral costs in South Africa

South Africa Kenya Ethiopia Tanzania Uganda

Labour costs $480000030\%40\%30\%35\%$

Energy costs $1200000130\%110\%120\%90\%$

Materials costs $1020000030\%40\%50\%45\%$

Transportation & logistics $3000000150\%140\%120\%130\%$

Taxation $350000090\%80\%70\%65\%$

REQUIRED:

Ceteris paribus, which country presents the most favourable operating cost environment for NLME? Use

the table to show your analysis.

$(6$ marks$)$

$5\mathrm{.}2.$ Use the information provided below to answer the following questions.

INFORMATION

Suppose a prominent multinational company $($MNC$)$ is contemplating the establishment of a new manufacturing facility in

South Africa, intending to serve customers across the Southern African Development Community $($SADC$)$ region. The

company is currently in the final stages of selecting a suitable location for the facility from three potential cities:

Johannesburg, Cape Town, and Durban.

The following valid and reliable data for the three locations are available for a locational break$-$even analysis:

Location Johannesburg Cape Town Durban

Expected sales $($@R$2500$ per unit$)5000$ units $5000$ units $5000$ units

Total fixed manufacturing costs R$600000$ R$1200000$ R$2200000$

Direct material cost per unit R$400$ R$200$ R$130$

Direct labour cost per unit R$150$ R$120$ R$100$

Variable overhead per unit R$200$ R$180$ R$120$

REQUIRED:

$5\mathrm{.}2\mathrm{.}1.$ Specify THREE steps that the multinational company should consider in the locational break$-$even

analysis.

$(3$ marks$)$

$5\mathrm{.}2\mathrm{.}2.$ On the basis of the data provided above, undertake a locational cost$-$volume analysis to determine

the most suitable location for the MNC$$s facility in South Africa. As part of the analysis, $($a$)$ formulate the

cost function for each of the three locations, $($b$)$ determine the total cost for each location for the $5000$

units of production, and $($c$)$ calculate the expected profit for each location if all the $5000$ units produced are

sold at R$2500$ per unit.

$(11$ marks$)$

QUESTION $6(20$ Marks