Chapter 08 - Location Planning and Analysis

Solutions
1. Profit = (Rev/unit – VC/unit)Q – FC
Omaha: ($185/unit – $36/unit)8,000 units – $1,200,000 = –$8,000
K.C.: ($185/unit – $47/unit)12,000 units – $1,400,000 = $256,000

2. Location
A B C
Rev/unit $2.65 $2.65 $2.65
VC/unit 1.76 1.76 1.76
FC $5,000 $5,500 $5,800

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Chapter 08 - Location Planning and Analysis

specified profit + FC A B C
a. Q =
Rev/unit – VC/unit = 16,854 17,416 17,753
b. Profit = (Rev/unit – VC/unit)Q – FC = $13,690 $14,080 $14,670
3. A B
FC $800,000 $920,000
VC/unit $14,000 $13,000
Rev/unit $17,000 $17,000
a. TC = VC/unit x Q + FC
[A] [B]
$14,000Q + $800,000 = $13,000Q + $920,000
Solving, Q = 120 units
b. A: 0 to 119
B: 121 or more
4. A B C
FC/year $250,000 $50,000
VC/unit 500 2,500 1,000

a. 500

400 A (new location)

TC
($000)
300
[250] C (expansion)

200 B (sub-
contract)

100
[50]

0 33.3 100 200 300 400

B C A
No. of Boats/yr.

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Chapter 08 - Location Planning and Analysis

b. C (from graph)
c. Subcontracting prices are probably more precise, subcontracting provides another source of
supply. Expansion would allow more control and flexibility.

5. A B C
FC $254,000 $25,000 $120,000
VC/unit 500 2,500 1,000
TC = VC/unit x Q + FC
A: $500(150) + $254,000 = $329,000
B: $2,500(150) + $25,000 = $400,000
C: $1,000(150) + $120,000 = $270,000*

6. Memphis Biloxi Birmingham

Lease, equipment $40,000 $60,000 $100,000
Transportation 50,000 60,000 25,000
“Fixed” Costs $90,000 $120,000 $125,000
VC/unit $8 $4 $5

Memphis Biloxi Birmingh

am
TC = VC/unit x Q + FC: $170,000 $160,000 $175,000

7. City Outside
FC/month $7,000 $4,700
VC/unit $30 $40
Rev/unit $90 $90

Profit = (rev/unit – VC/unit) – FC

City Outside
a. P200 $5,000 $5,300*
P300 11,000* 10,300
b. ($90 – $30)Q – $7,000 = ($90 – $40)Q – 4,700
Solving, Q = 230 cars

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Chapter 08 - Location Planning and Analysis

8. Factor Local bank Steel mill Food warehouse Public school

1. Convenience for
customers H L M–H M–H
2. Attractiveness of
building H L M M–H
3. Nearness to raw
materials L H L M
4. Large amounts of
power L H L L
5. Pollution
controls L H L L
6. Labor cost and
availability L M L L
7. Transportation
costs L M–H M–H M
8. Construction
costs M H M M–H

9. Factor Wt. A B C
1. Conv. access .15 .15(80) = 12.00 .15(70) = 10.50 .15(60) = 9.0
2. Parking .20 .20(72) = 14.40 .20(76) = 15.20 .20(92) = 18.4
3. Display area .18 .18(88) = 15.84 .18(90) = 16.20 .18(90) = 16.2
4. Shopper traffic .27 .27(94) = 25.38 .27(86) = 23.22 .27(80) = 21.6
5. Operating costs .10 .10(98) = 9.80 .10(90) = 9.00 .10(82) = 8.2
6. Neighborhood .10 .10(96) = 9.60 .10(85) = 8.50 .10(75) = 7.5
1.00 87.02 82.62 80.9
On the basis of composite score, A seems the best.

10.
Factor Wt. East #1 East #2 West
1. Initial Cost 8 8(100) = 800 8(150) = 1200 8(140) =1120
2. Traffic 10 10(40) = 400 10(40) = 400 10(30) = 300
3. Maintenance 6 6(20) = 120 6(25) = 150 6(18) = 108
4. Dock space 6 6(25) = 150 6(10) = 60 6(12) = 72
5. Neighborhood 4 4(12) = 48 4(8) = 32 4(15) = 60
1518 1842 1660
On the basis of composite score, .East # 2 is best.

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Chapter 08 - Location Planning and Analysis

Location (a) Location (b)

11. Factor A B C Weight A B C
1. Business Services 9 5 5 2/9 18/9 10/9 10/9
2. Community Services 7 6 7 1/9 7/9 6/9 7/9
3. Real Estate Cost 3 8 7 1/9 3/9 8/9 7/9
4. Construction Costs 5 6 5 2/9 10/9 12/9 10/9
5. Cost of Living 4 7 8 1/9 4/9 7/9 8/9
6. Taxes 5 5 5 1/9 5/9 5/9 4/9
7. Transportation 6 7 8 1/9 6/9 7/9 8/9
Total 39 44 45 1.0 53/9 55/9 54/9
Each factor has a weight of 1/7.

39 44 45
a. Composite Scores
7 7 7
B or C is the best and A is least desirable.
b. Business Services and Construction Costs both have a weight of 2/9; the other factors each
have a weight of 1/9.
5 x + 2 x + 2 x = 1  x = 1/9
A B C
c. Composite Scores
53/9 55/9 54/9
B is the best followed by C and then A.
x y
Location
12.
A 3 7
B 8 2
C 4 6
D 4 1
E 6 4
Totals 25 20

xi yi
(= = 25 = 5.0 (= = 20 = 4.0
n 5 n 5
Hence, the center of gravity is at (5,4) and therefore the optimal location.

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Chapter 08 - Location Planning and Analysis

13. Location x y 0
A 5 7 15
B 6 9 20
C 3 9 25
D 9 4 30
Totals 23 29 90

xiQi 5(15) + 6(20) + 3(25) + 9(30) 540

(= = = = 6.0
Qi 90 90

xiQi 7(15) + 9(20) + 9(25) + 4(30) 630

(= = = = 7.0
Qi 90 90
The center of gravity and optimal location is (6,7).

14. Location Volume in

x y Tons Per Day
10 5 26
4 1 9
4 7 25
2 6 30
8 7 40
28 26 130

(= xiQi 10(26) + 4(9) + 4 (25) + 2(30) + 8(40)

=
Qi 130
(= 776
= 5.97
130
(= yiQi 5(26) + 1(9) + 7(25) + 6(30) + 7(40)
=
Qi 130
(= 774
= 5.95
130
Hence, the center of gravity and optimal location.

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Chapter 08 - Location Planning and Analysis

15.
x, y
Destination Coordinates Quantity xQ yQ
D1 1,2 900 900 1,800
D2 2,4 300 600 1,200
D3 3,1 700 2,100 700
D4 4,2 600 2,400 1,200
D5 5,3 1,200 6,000 3,600
3,700 12,000 8,500

12,000
x= = 3.24
3,700

8,500
y= = 2.30
3,700

Plotting the coordinates on the graph given in the problem reveals that L2 is closest
to the center of gravity.

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