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Unformatted text preview: Location Planning and Analysis – Part 2 Chapter 8 Evaluating Location Alternatives Common techniques: Locational costvolumeprofit analysis Factor rating Center of gravity method Transportation model Locational CostProfitVolume Analysis Locational CostProfitVolume Analysis (Also called BreakEven Analysis in other settings.) Technique for evaluating location choices in economic terms Steps: 1. Determine the fixed and variable costs for each alternative. 2. Plot the totalcost lines for all alternatives on the same graph. 3. Determine the location that will have the lowest total cost (or highest profit) for the expected level of output. Locational CostProfitVolume Analysis Assumptions 1. Fixed costs are constant for the range of probable output. 2. Variable costs are linear for the range of probably output. 3. The required level of output can be closely estimated. 4. Only one product is involved. Locational CostProfitVolume Analysis For a cost analysis, compute the total cost for each alternative location: output of or volume Quantity unit per cost Variable cost Fixed FC where FC Cost Total = = = × + = Q v Q v Example: CostProfitVolume Analysis Fixed and variable costs for four potential plant locations are shown below: Location Fixed Cost per Year Variable Cost per Unit A $250,000 $11 B $100,000 $30 C $150,000 $20 D $200,000 $35 Example: CostProfitVolume Analysis Location Fixed Cost per Year Variable Cost per Unit A $250,000 $11 B $100,000 $30 C $150,000 $20 D $200,000 $35 Example: CostProfitVolume Analysis B Superior C Superior A Superior Example: CostProfitVolume Analysis...
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This note was uploaded on 03/29/2012 for the course ECON 101 taught by Professor Schneider during the Spring '11 term at Kansas State University.
 Spring '11
 Schneider

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