OM (with OM Online, 1 term (6 months) Printed Access Card)
OM (with OM Online, 1 term (6 months) Printed Access Card)
6th Edition
ISBN: 9781305664791
Author: David Alan Collier, James R. Evans
Publisher: Cengage Learning
bartleby

Concept explainers

Question
Book Icon
Chapter 6, Problem 4PA

(a)

Summary Introduction

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)

Expert Solution
Check Mark

Explanation of Solution

Given Information:

    CP Location Analysis DataLocation 1Location 2Location 3Location 4Location 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 CostsLocation 1Location 2Location 3Location 4Location 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)

Summary Introduction

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)

Expert Solution
Check Mark

Explanation of Solution

    Associated CostsLocation 1Location 2Location 3Location 4Location 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:

  19.34x+ 75000 = 19.1x + 95000

By solving above equation, we get x = 83,333.33

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?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Can you guys help me with this? Thank you! Business Environment: Provide insights into the guidelines for conducting business in the chosen country and working there as an expatriate. This information is vital for understanding the practicalities of engagement in that particular environment. The country in here is India  Put the answer as bullet points, provide sources that have relevant information for the answer on economic factors
Can you guys help me with this? Thank you! Intriguing Facts: Incorporate engaging facts about the country that enhance its value and uniqueness within the global supply chain landscape. These can include cultural anecdotes, technological innovations, or historical achievements. The country in here is India  Put the answer as bullet points, provide sources that have relevant information for the answer on economic factors
Can you guys help me with this? Thank you! Economic Factors: Evaluate the country's economic performance by analyzing key indicators such as GDP (Gross Domestic Product), GDP per capita, exports, and imports. These metrics provide insight into the country's economic prowess and its position in global trade. The country in here is India  Put the answer as bullet points, provide sources that have relevant information for the answer on economic factors
Knowledge Booster
Background pattern image
Operations Management
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,
Text book image
Purchasing and Supply Chain Management
Operations Management
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Cengage Learning
Text book image
Management, Loose-Leaf Version
Management
ISBN:9781305969308
Author:Richard L. Daft
Publisher:South-Western College Pub
Text book image
MARKETING 2018
Marketing
ISBN:9780357033753
Author:Pride
Publisher:CENGAGE L