ASSIGNMENT 3

Ques1. Write the steps to find the location for your plan. And also write
factors influencing location.
Sol--
The product that I chose was Hiring Firm.
Steps to find out the location for the plant:
1) Domestic Country- Domestic country refers to the country in which the
product/service is being manufactured. The country for providing
services for my product is India.
2) State- A state is a centralized political organization that imposes and
enforces rules over a population within a territory. The state which is
best suited for my services is Delhi/NCR.
3) Region- Region is an area especially part of a country or state having
definable characteristics but not always fixed boundaries. The region
chosen by me is north-west NOIDA
4) Position- It refers to the place where a particular point or object exists.
The exact position of my firm would be World Trade Tower Noida
sector 16. It a hub for majorly all of the big MNC’s situated in North
India. This would serve out to be the best place as all offices would
require manpower and my firm will supply the same.
Factors influencing plant location-
 Availability of Raw Materials-Raw materials are the basic components of
finished products. This is one of the most important considerations when
selecting a factory location.
 Proximity to Market-Every finished product needs to go to the market for
consumer consumption. Here also transportation overhead increases the cost
of the finished product.

 Infrastructural Facilities-This is important in view of the fact that all

supporting services are required for the successful operation of the plant.

SUBMITTED BY:
ABHIJEET SINGH
BBA-M5A [00319101720]
 The availability of communication facilities is also an important part of the
infrastructure.

 Government Policy-The Government offers several incentives,

concessions, tax holidays for a few years, cheaper power supply, factory
sheds, etc., to attract the entrepreneurs to set up industries in less developed
and backward areas.

 Availability of Manpower-Local availability of skilled and semi-skilled

manpower will add to the efficient running of the plant.

 Competition-If you are dealing with an innovative product and your plant is
in an industrial zone, then you might face competition in manufacturing
automation from other companies.

 Climatic Conditions-Climatic conditions affect both people and

manufacturing activity. Additionally, certain industries require a specific
type of climatic conditions to produce their goods.

 Taxation Policy-One of the major factor could be the taxation policy levied
by the state/central government as lesser the taxes, lower the taxation better
for the business.

Ques2. Explain different methods of selecting a location in relation to your

selected product.

The different methods for selecting a location are:

1. Factor Rating Method

The process of selecting a new facility location involves a series of following steps:

1.
1. Identify the important location factors.
2. Rate each factor according to its relative importance, i.e., higher the ratings
is indicative of prominent factor.
3. Assign each location according to the merits of the location for each factor.
SUBMITTED BY:
ABHIJEET SINGH
BBA-M5A [00319101720]
 4. Calculate the rating for each location by multiplying factor assigned to each
location with basic factors considered.
5. Find the sum of product calculated for each factor and select best location
having highest total score.

ILLUSTRATION 1:
Let us assume that a new medical facility, Health-care, is to be located in Delhi. The
location factors, factor rating and scores for two potential sites are shown in the
following table. Which is the best location based on factor rating method?

The total score for location 2 is higher than that of location 1. Hence location 2, is the
best choice.

2. Weighted Factor Rating Method

In this method to merge quantitative and qualitative factors, factors are assigned weights
based on relative importance and weightage score for each site using a preference matrix
is calculated. The site with the highest weighted score is selected as the best choice.

ILLUSTRATION 2:
Let us assume that a new medical facility, Health-care, is to be located in Delhi. The
location factors, weights, and scores (1 = poor, 5 = excellent) for two potential sites are
shown in the following table. What is the weighted score for these sites? Which is the best
location?
SUBMITTED BY:
ABHIJEET SINGH
BBA-M5A [00319101720]
SOLUTION:

The weighted score for this particular site is calculated by multiplying each factor’s
weight by its score and adding the results:

Weighed score location 1 = 25 × 3 + 25 × 4 + 25 × 3 + 15 × 1 + 10 × 5 = 75 + 100 + 75 +

15 + 50 = 315 Weighed score location 2 = 25 × 5 + 25 × 3 + 25 × 3 + 15× 2 + 10 × 3 =
125 + 75 + 75 + 30 + 30 = 335

Location 2 is the best site based on total weighted scores.

3. Load-distance Method

The load-distance method is a mathematical model used to evaluate locations based on

proximity factors. The objective is to select a location that minimizes the total weighted
loads moving into and out of the facility. The distance between two points is expressed
by assigning the points to grid coordinates on a map. An alternative approach is to use
time rather than distance.

ILLUSTRATION 3:

The new Health-care facility is targeted to serve seven census tracts in Delhi. The
table given below shows the coordinates for the centre of each census tract, along
with the projected populations, measured in thousands. Customers will travel from
the seven census tract centers to the new facility when they need health-care. Two
locations being considered for the new facility are at (5.5, 4.5) and (7, 2), which are
the centers of census tracts C and F. Details of seven census tract centers, co-
ordinate distances along with the population for each centre are given below. If we
use the population as the loads and use rectilinear distance, which location is better
in terms of its total load- distance score?

SUBMITTED BY:
ABHIJEET SINGH
BBA-M5A [00319101720]
SOLUTION:
Calculate the load-distance score for each location. Using the coordinates from the
above table calculate the load-distance score for each tract.
Using the formula DAB = |XA– XB| + |YA– YB|

Summing the scores for all tracts gives a total load-distance score of 239 when the
facility is located at versus a load-distance score of 168 at location (7, 2). Therefore,
the location in census tract F is a better location.

4. Cost Profit Volume Analysis

CVP analysis looks at the effect of sales volume variations on costs and operating profit.
The analysis is based on the classification of expenses as variable (expenses that vary in
direct proportion to sales volume) or fixed (expenses that remain unchanged over the
long term, irrespective of the sales volume). Accordingly, operating income is defined as
follows:

Operating Income = Sales – Variable Costs – Fixed Costs

A CVP analysis is used to determine the sales volume required to achieve a specified
profit level. Therefore, the analysis reveals the break-even point where the sales volume
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ABHIJEET SINGH
BBA-M5A [00319101720]
yields a net operating income of zero and the sales cutoff amount that generates the first
dollar of profit.

Cost-volume profit analysis is an essential tool used to guide managerial, financial and
investment decisions.

Illustration 4;

ABC Limited has entered into the business of making Electrical fans. The management of
the company is interested in knowing the breakeven point at which there will be no
profit/loss. Below are the details pertaining to the cost incurred:

Solution

No. of units sold by ABC limited: ($300000/$300) = 1000 units

Variable cost per unit= ($240000/1000)=$240

 Contribution per unit= Selling price per unit-Variable cost per unit

 = ($300-$240)

 = $60 per unit

Break-Even Point= (Fixed Cost/Contribution per unit)

 = ($60000/$60)

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ABHIJEET SINGH
BBA-M5A [00319101720]
  =10000 units

Thus ABC limited the need to sell 10000 units of electric fans to break even at the
current cost structure.

SUBMITTED BY:
ABHIJEET SINGH
BBA-M5A [00319101720]