1. Suppose that IKEA is considering locating a new IKEA facility in South Africa and that the company is considering three possible locations Johannesburg, Cape Town, and Durban for the location of the facility.

Location	Johannesburg	Cape Town	Durban
Total fixed costs	R600 000	R1 200 000	R2 200 000
Direct material cost per unit	R400	R200	R130
Direct labour cost per unit	R150	R120	R100
Variable overhead per unit	R200	R180	R120

The company wishes to find the most economical location for an expected volume of 5 000 units of a furniture set per year. Assume that the expected average selling price for a unit of the furniture set is R2 500.

REQUIRED:

1. Discuss the three steps involved in locational break-even analysis.

2. On the basis of the data on the three locations provided above, use a locational cost-volume analysis to determine the most suitable location for the IKEA facility in South Africa. As part of the analysis, plot the cost curve for each of the three location on the same graph, determine the total cost for each location, and the expected profit for each location. For the plots, use volume from 0 to 7400 at intervals of 200.