Exam 8: Location Strategies

Advantage Milling Devices is preparing to buy a new machine for precision milling of special metal alloys. This device can earn $200 per hour, and can run 3,000 hours per year. The machine is expected to be this productive for four years. If the interest rate is 5%, what is the net present value of the annual cash flows? What is the net present value if the interest rate is not 5%, but 8%? Why does present value fall when interest rates rise?

A useful tactic for increasing capacity is to redesign a product in order to facilitate more throughput.

For net present value calculations, we assume that payments are always made at the beginning of the period.

________ is actual output as a percent of design capacity.

A local business owner is considering adding another employee to his staff in an effort to increase the number of hours that the store is open per day. If the employee will cost the owner $4,000 per month and the store takes in $50/hour in revenue with variable costs of $15/hour, how many hours must the new employee work for the owner to break even?

A manufacturing company is considering three expansion options. The first is to do nothing (Option A). The next is to leave the current plant open and also open a new larger plant (Option B). Finally, they could close the existing plant and open the new, larger one (Option C). Given the variable costs (VC) and fixed costs (FC) from the table below, calculate the range for which each option minimizes cost.

An organization whose capacity is on the portion of the average unit cost curve that increases as output rises:

An example of an intangible cost, as it relates to location decisions, is depreciation.

A manufacturer of stamped metal auto parts has four parts factories in one city at the location coordinates shown below. Each coordinate unit represents a city block (roughly 100 meters). The yearly demand at each factory is also given. Management has decided to build a new sheet metal mill, to supply these factories, at a location central to these plants. What should be the map coordinates of the new plant?

Define fixed costs.

________ and currency risks are to key country success factors as land costs and ________ are to key region success factors.

A county wants to build one centrally-located processing facility to serve the county's four recycling drop-off locations. The four drop-offs have characteristics as given in the table below. What is the approximate center of gravity of these four locations?

Which of the following methods best considers intangible costs related to a location decision?

A product sells for $5, and has unit variable costs of $3. The annual sales units for this product are 5,000. The firm has a total annual sales revenue of $60,000. When performing multiproduct break-even analysis, what is the weighted contribution of this product?

The factor-rating method can consider only tangible costs, not intangible costs.

What is it called when competing companies locate next to each other? Why do they do this?

A farmers' cooperative association plans to build a new sugar mill in Southwestern Louisiana. The primary objective of the mill is to provide the farmers with a place to take their crop for processing that will reduce their transportation costs. The members of the co-op believe that the center-of-gravity method is appropriate for this objective. While there are over 200 sugar cane farms in the region, they are tightly clustered around six villages. Using the data below, use the center-of-gravity method to calculate the coordinates of the best location for this mill. All mileage references use the city of Lake Charles as (0,0).

________ costs are readily identifiable and can be measured with precision.

A firm produces three products in a repetitive process facility. Product A sells for $60; its variable costs are $20. Product B sells for $200; its variable costs are $80. Product C sells for $25; its variable costs are $15. The firm has annual fixed costs of $320,000. Last year, the firm sold 1000 units of A, 2000 units of B, and 10,000 units of C. Calculate the break-even point of the firm. The firm has some idle capacity at these volumes, and chooses to cut the selling price of A from $60 to $45, believing that its sales volume will rise from 1000 units to 2500 units. What is the revised break-even point?

A firm produces three products. Product A sells for $50; its variable costs are $15. Product B sells for $200; its variable costs are $150. Product C sells for $25; its variable costs are $10. Last year, the firm sold 5000 units of A, 3000 units of B, and 6000 units of C. The firm has fixed costs of $220,000 per year. Calculate the break-even point in dollars for the firm.