Practice Problems

Chapter 8—Location Strategies

NANCY IVONE SUBIRIAS GARCIA 170991

Problem 1:
A major drug store chain wishes to build a new warehouse to serve the whole Midwest. At the
moment, it is looking at three possible locations. The factors, weights, and ratings being
considered are given below:

Ratings

Factor Weights Peoria Des Moines Chicago

Nearness to markets 20 4 7 5

Labor cost 5 8 8 4

Taxes 15 8 9 7

Nearness to suppliers 10 10 6 10

Weighted Scores
PEORIA DES MOINSES CHICAGO
(20)(4) =80 (20)(7) =140 (20)(5) =100
(5)(8) =40 (5)(8) =40 (5)(4) =20
(15)(8) =120 (15)(9) =135 (15)(7) =105
(10)(10)= 100 (10)(6) =60 (10)(10) =100
340 375 325

Which city should they choose?

They should choose Des Moinses city, based on the weighted scores.

1
Problem 2:
Balfour’s is considering building a plant in one of three possible locations. They have estimated
the following parameters for each location:

Location Fixed Cost Variable Cost

Waco, Texas $300,000 $5.75

Tijuana, Mexico $800,000 $2.75

Fayetteville, Arkansas $100,000 $8.00

For what unit sales volume should they choose each location?
We need to solve for the crossover between Waco, Texas and Tijuana, México:
$300,000 + (5.75) V1 = $800,000 + (2.75)V1
(3) V1 = 500,000
V1 = 166, 666.66 units

We need to solve for the crossover between Waco, Texas and Fayetteville, Arkansas:
$300,000 + (5.75) V1 = $100,000 + (8)V1
(2.25) V1 = 200,000
V1 = 88,888.88 units