8.

16The fixed and variable costs for three potential manufacturing plant sites for a rattan
chair weaver are shown:

SITE FIXED COST PER YEAR VARIABLE COST PER UNIT a)

1 $500 $11

2 1,000 7

3 1,700 4
Over what range of production is each location optimal?
Breakeven in dollar = Fixed cost / Variable cost per unit

Total cost for site 1 = 500 + 11x

Total cost for site 2 = 1000 + 7x
Total cost for site 3 = 1700 + 4x

Cross over point between site 1 and site 2

500 + 11 x = 1000 + 7x
4x = 500
x = 125 units

Cross over point between site 1 and site 3

500 + 11x = 1700 + 4x
7x = 1200
X = 171

Cross over point between site 2 and site 3

1000 + 7x = 1700 + 4x
4x = 700
X = 233

Site 1 is preferable for production value between 0 to 125 units

Site 2 is preferable for production value between 125 to 233
Site 3 is preferable for production value above 233

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 4000

3500

3000

2500

2000

1500

1000

500

0
50 100 150 200 250 300
Site 1 Site 2 Site 3

b) For a production of 200 units, which site is best?

Site 1
Total variable cost for 200 units: $11 x 200 = $2200
Total cost: $500 + $2200 = $2700

Site 2
Total variable cost for 200 units: $7 x 200 = $1400
Total cost: $1000 + $1400 = $2400

Site 3
Total variable cost for 200 units: $4x 200 = $800
Total cost: $1700+ $800 = $2700

Site 2 has the lowest cost, therefore it is the best site.

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 8.21 A chain of home health care firms in Louisiana needs to locate a central office from
which to conduct internal audits and other periodic reviews of its facilities. These facilities
are scattered throughout the state, as detailed in the following table. Each site, except for
Houma, will be visited three times each year by a team of workers, who will drive from the
central office to the site. Houma will be visited five times a year. Which coordinates represent
a good central location for this office? What other factors might influence the office location
decision? Where would you place this office? Explain.

MAP COORDINATES

CITY X Y

Covington 9.2 3.5

Donaldsonville 7.3 2.5

Houma 7.8 1.4

Monroe 5.0 8.4

Natchitoches 2.8 6.5

New Iberia 5.5 2.4

Opelousas 5.0 3.6

Ruston 3.8 8.5

Total number of sites: 8

Number of visits = (7x 3) + (1 x 5) = 26 visits

x-coordinate of the center of gravity:

(9.2∗3)+(7.3∗3)+(5∗3)+(2.8∗3)+(5.5∗3)+(5∗3)+(3.8∗3)+(7.8∗5)
= 5.95
26

y-coordinate of the center of gravity:

(3.5∗3)+(2.5∗3)+(8.4∗3)+(6.5∗3)+(2.4∗3)+(3.6∗3)+(8.5∗3)+(1.4∗5)
=¿ 4.35
26

Co-ordinate (5.95,4.35) is the good central location.

This is just an estimate location, we also need to consider the traffic or highway.

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