Chapter 11—Global Location Decisions

TRUE/FALSE

1. Access to global markets and corporate networks makes the role of location less important as a source
of competitive advantage.

ANS: F PTS: 1
BUSPROG: Diversity LO: 11-1 Bloom’s: Comprehension Difficulty: Easy

2. Facility location has a short-term impact on the firm’s supply chains.

ANS: F PTS: 1
BUSPROG: Diversity LO: 11-1 Bloom’s: Comprehension Difficulty: Easy

3. Global location decisions are made to optimize the performance of supply chains and to be consistent
with the firm's competitive strategy.

ANS: T PTS: 1
BUSPROG: Diversity LO: 11-1 Bloom’s: Comprehension Difficulty: Easy

4. Facility location decisions can affect the efficiency and effectiveness of managing supply chains, the
level of service provided to customers, and a firm’s overall competitive advantage.

ANS: T PTS: 1
BUSPROG: Diversity LO: 11-1 Bloom’s: Knowledge Difficulty: Easy

5. While the development and proliferation of the Internet and web-based commerce has not completely
eliminated the relevancy of facility locations, because of the Internet, the speed of delivery and cost in
serving the customer are no longer factors in determining the strategic location of an organization's
facilities.

ANS: F PTS: 1
BUSPROG: Analytic LO: 11-1 Bloom’s: Comprehension Difficulty: Easy

6. Many multinational corporations are moving their facilities into China to have access to the local
markets rather than for export reasons.

ANS: T PTS: 1
BUSPROG: Analytic LO: 11-2 Bloom’s: Comprehension Difficulty: Easy

7. Volatile currency exchange rates do not have an impact on location decisions.

ANS: F PTS: 1
BUSPROG: Analytic LO: 11-2 Bloom’s: Comprehension Difficulty: Easy

8. High tariffs encourage multinational corporations to set up factories to produce locally.

ANS: T PTS: 1
BUSPROG: Analytic LO: 11-2 Bloom’s: Comprehension Difficulty: Easy
 9. In the U.S. there is a trend to locate manufacturing facilities in the sunny, incentive-friendly,
nonunionized South.

ANS: T PTS: 1
BUSPROG: Diversity LO: 11-2 Bloom’s: Knowledge Difficulty: Easy

10. A list of quality-of-life factors would most likely include proximity to customers, proximity to
suppliers, tariff rates, and currency stability.

ANS: F PTS: 1
BUSPROG: Analytic LO: 11-2 Bloom’s: Comprehension Difficulty: Easy

11. While many developing countries are attractive to companies seeking out low labor costs, there are
other factors such as productivity levels, employee skill and education levels, turnover rates, and
employment trends that certain industries find just as important, if not more important, in determining
facility locations.

ANS: T PTS: 1
BUSPROG: Diversity LO: 11-2 Bloom’s: Comprehension Difficulty: Easy

12. The Americas have two primary regional trade agreements, NAFTA, an agreement between the United
States, Canada, and Mexico, and COMESA, an agreement between all of the South American
countries.

ANS: F PTS: 1
BUSPROG: Diversity LO: 11-3 Bloom’s: Knowledge Difficulty: Easy

13. Regional trade agreements and the World Trade Organization provide a framework for managers in
terms of investigating important facility location elements like tariffs, costs, and the free flow of goods
and services in different regions of the world.

ANS: T PTS: 1
BUSPROG: Diversity LO: 11-3 Bloom’s: Comprehension Difficulty: Easy

14. The European Union (EU) is considered a regional trade agreement.

ANS: T PTS: 1
BUSPROG: Analytic LO: 11-3 Bloom’s: Knowledge Difficulty: Easy

15. A country that imposes high tariffs encourages foreign-based companies to import goods.

ANS: F PTS: 1
BUSPROG: Analytic LO: 11-3 Bloom’s: Comprehension Difficulty: Easy

16. Using the weighted-factor rating model, the location with the lowest total weighted score is the
recommended location.

ANS: F PTS: 1
BUSPROG: Analytic LO: 11-4 Bloom’s: Comprehension Difficulty: Easy

17. The weighted-factor rating model, is a useful location analysis technique when fixed and variable costs
can be determined for each potential location.

ANS: F PTS: 1
 BUSPROG: Analytic LO: 11-4 Bloom’s: Comprehension Difficulty: Easy

18. A firm is planning to open a bicycle store and is using the weighted-factor rating model, to decide
which site should be selected. Using the data from the table below, the firm should locate the store in
Reno.

Critical location Factor Reno Henderson Las Vegas

factors Scores Scores Scores
(1–100) (1–100) (1–100)
Labor cost 0.15 70 85 50
Proximity to market 0.25 100 90 80
Supplier base 0.30 80 95 70
Quality of life 0.20 90 80 60
Taxes 0.10 85 80 75

ANS: F PTS: 1
BUSPROG: Analytic LO: 11-4 Bloom’s: Application Difficulty: Easy

19. Two models that utilize quantitative data, which can help determine the attractiveness of one location
versus another, are the Break-Even Model and the Extrapolated Average Cost Model.

ANS: F PTS: 1
BUSPROG: Analytic LO: 11-4 Bloom’s: Knowledge Difficulty: Easy

20. Locating research and development, component manufacturing, assembly operations, marketing, and
other associated businesses in one area can improve the supply chain, technology sharing, and
information sharing.

ANS: T PTS: 1
BUSPROG: Analytic LO: 11-5 Bloom’s: Comprehension Difficulty: Easy

21. Business clusters provide the competitive environment that promotes increasing innovation and
profitability.

ANS: T PTS: 1
BUSPROG: Analytic LO: 11-5 Bloom’s: Comprehension Difficulty: Easy

22. Due to the advances in technology, less business clusters are being created globally.

ANS: F PTS: 1
BUSPROG: Analytic LO: 11-5 Bloom’s: Knowledge Difficulty: Easy

23. The development of cleaner, more fuel-efficient and affordable energy technologies will have a direct
impact on the cost of production of goods and delivery of services.

ANS: T PTS: 1
BUSPROG: Ethics LO: 11-6 Bloom’s: Knowledge Difficulty: Easy

24. The critical issues in sustainable development are energy consumption/production, air pollution and
climate change.
 ANS: T PTS: 1
BUSPROG: Ethics LO: 11-6 Bloom’s: Comprehension Difficulty: Easy

MULTIPLE CHOICE

1. Which of the following strategic foreign facilities is set up in a location with an abundance of
advanced suppliers, competitors, research facilities, and knowledge centers to get access to the most
current information on materials, components, technologies, and products?
a. Offshore factory
b. Server factory
c. Source factory
d. Outpost factory
ANS: D PTS: 1
BUSPROG: Diversity LO: 11-1 Bloom’s: Comprehension Difficulty: Easy

2. According to the text, which of the following would be an example of Coca-Cola’s international
bottling plants, each serving a small geographic region?

a. Offshore factory
b. Server factory
c. Source factory
d. Outpost factory
ANS: B PTS: 1
BUSPROG: Diversity LO: 11-1 Bloom’s: Comprehension Difficulty: Easy

3. Once a decision on locating a facility is made, it is ________ to move or shut down that facility.
a. Easy
b. Costly
c. Cheap
d. None of the above
ANS: B PTS: 1
BUSPROG: Analytic LO: 11-1 Bloom’s: Comprehension Difficulty: Easy

4. Facility location has ____________on the supply chain.

a. A short-term impact
b. Minimal impact
c. A long-term impact
d. No impact
ANS: C PTS: 1
BUSPROG: Analytic LO: 11-1 Bloom’s: Comprehension Difficulty: Easy

5. Which of the following issues is (are) important to consider when trying to determine the location of a
firm's facilities?
a. The stability in the location considered
b. Environmental issues regulated by domestic laws or international trade agreements
c. Access to suppliers from the location considered
d. All of the above
ANS: D PTS: 1
BUSPROG: Analytic LO: 11-2 Bloom’s: Comprehension Difficulty: Easy
 6. Which of the following would be considered a quality of life factor?
a. Wage rates
b. Foreign exchange rates
c. Community safety
d. All of the above
ANS: C PTS: 1
BUSPROG: Analytic LO: 11-2 Bloom’s: Comprehension Difficulty: Easy

7. Choosing to manufacture in China to sell to Chinese customers would likely involve which location
decision consideration?
a. Proximity to markets
b. Environmental issues
c. Land availability and cost
d. Utility availability and cost
ANS: A PTS: 1
BUSPROG: Analytic LO: 11-2 Bloom’s: Comprehension Difficulty: Easy

8. Which of the following secures the right of employees to decide whether to join or financially support
a union?
a. Union shop laws
b. Union planning forums
c. Ethical union initiatives
d. Right-to-work laws
ANS: D PTS: 1
BUSPROG: Analytic LO: 11-2 Bloom’s: Knowledge Difficulty: Easy

9. A firm wanting to import items duty free and then use the component for local production of a product
that is then exported would most likely utilize a(n):
a. Duty-free Territory
b. International Cross Docking Zone
c. Foreign Trade Zone
d. International Processing Center
ANS: C PTS: 1
BUSPROG: Diversity LO: 11-2 Bloom’s: Knowledge Difficulty: Easy

10. Which of the following is a factor in choosing a location?

a. Currency stability
b. Freight forwarders
c. Yokoten
d. All of the above
ANS: A PTS: 1
BUSPROG: Analytic LO: 11-2 Bloom’s: Comprehension Difficulty: Easy

11. Organizations that primarily compete on speed of delivery, such as FedEx and UPS, utilize which of
the following approaches for location determination?
a. Sourcing center
b. Air and ground
c. Hub and spoke
d. LTL consolidation
ANS: C PTS: 1
 BUSPROG: Analytic LO: 11-2 Bloom’s: Comprehension Difficulty: Easy

12. Regional trade agreements assist with which of the following?

a. Monitor national trade policies
b. Provide technical assistance for developing countries
c. Handle trade disputes
d. All of the above
ANS: D PTS: 1
BUSPROG: Analytic LO: 11-3 Bloom’s: Comprehension Difficulty: Easy

13. Examples of regional trade agreements include all of the following EXCEPT:
a. Association of Southeast Asian Nations (ASEAN)
b. Association of Indian Markets (AIM)
c. European Union (EU)
d. Southern Common Market (MERCOSUR)
ANS: B PTS: 1
BUSPROG: Diversity LO: 11-3 Bloom’s: Knowledge Difficulty: Easy

14. Which of the following trade agreements created the world’s largest free trade area, currently with
over 450 million people and GDP of more than US$20 trillion?
a. Association of Southeast Asian Nations (ASEAN)
b. European Union (EU)
c. North American Free Trade Agreement (NAFTA)
d. Southern Common Market (MERCOSUR)
ANS: C PTS: 1
BUSPROG: Diversity LO: 11-3 Bloom’s: Knowledge Difficulty: Easy

15. The World Trade Organization (WTO) is critical to the facility location decision process because of
their impact on:
a. Southeast Asian Nations
b. Tariffs
c. Innovation
d. Relationship marketing
ANS: B PTS: 1
BUSPROG: Diversity LO: 11-3 Bloom’s: Knowledge Difficulty: Easy

16. Use the breakeven model to determine which of the statements below is TRUE according to the
information provided in the table relating to two different location considered for a new manufacturing
facility.

LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS

Site A $25,000 $11
Site B $20,000 $19

a. The breakeven point for these two locations is 625 units per year
b. The breakeven point for these two locations is 600 units per year
c. Site A is the desired location if the production rate is 500 units per year
d. Site B is the desired location if the production rate is 800 units per year
ANS: A PTS: 1
BUSPROG: Analytic LO: 11-4 Bloom’s: Application Difficulty: Easy
17. Use the breakeven model to determine which of the statements below is TRUE according to the
information provided in the table relating to three different locations considered for a new
manufacturing facility.

LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS

Site A $35,000 $15
Site B $30,000 $21
Site C $20,000 $25

a. The breakeven point for Site A and B is 1500 units per year
b. Choose site C if you are producing 1000 units per year
c. Choose site C if you are producing more than 1500 units per year
d. Site B is the desired location if the production rate is 833 units per year
ANS: B PTS: 1
BUSPROG: Analytic LO: 11-4 Bloom’s: Application Difficulty: Easy

18. A certain organization trying to decide where to locate their future factory is considering three
locations. They are taking into account three factors: labor costs, currency stability, and proximity to
market. Using the weights for each factor listed below and the scores achieved by each of the three
considered locations, determine which location should be chosen for the new facility based on the
weighted factory location model.

SCORES (Maximum 100)

FACTOR WEIGHT SITE A SITE B SITE C
Labor Cost 0.25 92 82 84
Currency Stability 0.35 75 85 88
Proximity to Market 0.30 80 50 60
Taxes 0.10 69 88 91

a. Site A
b. Site B
c. Site C
d. All sites are equally attractive
ANS: A PTS: 1
BUSPROG: Analytic LO: 11-4 Bloom’s: Application Difficulty: Easy

19. A company is considering Denver, Seattle, and Portland as candidate locations for a new facility. For
the weighted-factor rating technique, the company is evaluating each location on three factors
(distance to customers, labor costs, and utility costs). The factors are weighted 0.5, 0.3, and 0.2,
respectively. Denver received scores of 90, 77, and 65 for the three factors. Seattle received scores of
87, 82, and 70. Portland received scores of 84, 86, and 75. Which of the three cities is ranked second
by the weighted-factor rating technique?

a. Denver
b. Seattle
c. Portland
d. All sites are equally attractive
ANS: B PTS: 1
BUSPROG: Analytic LO: 11-4 Bloom’s: Application Difficulty: Easy
20. The first step in the weighted-factor rating technique is to:
a. Assign a weight to each factor
b. Multiply each factor score by its weight and sum the weighted scores for each location
c. Identify all factors considered important to the facility location decision
d. Assign a performance score to each factor for each location
ANS: C PTS: 1
BUSPROG: Analytic LO: 11-4 Bloom’s: Comprehension Difficulty: Easy

21. The following facility location technique uses fixed and variable costs to analyze potential locations:
a. Break-even model
b. Business cluster analysis model
c. Weighted-factor rating model
d. Mean absolute deviation model
ANS: A PTS: 1
BUSPROG: Analytic LO: 11-4 Bloom’s: Comprehension Difficulty: Easy

22. Which of the following is NOT a reason for locating in a business cluster?
a. Technology sharing
b. Supply chain improvements
c. Sophisticated retailers
d. Competition
ANS: C PTS: 1
BUSPROG: Analytic LO: 11-5 Bloom’s: Comprehension Difficulty: Easy

23. Milan, Wall Street, and Detroit are examples of ____________.

a. Business conglomerates
b. Business clusters
c. Regional trade agreements
d. Strategic supplier alliances
ANS: B PTS: 1
BUSPROG: Analytic LO: 11-5 Bloom’s: Comprehension Difficulty: Easy

24. Interconnected companies and institutions from a particular field which are located in a single
geographic location, are referred to is a(n):
a. Business cluster
b. Metroplex
c. Regional business center
d. Industrial point
ANS: A PTS: 1
BUSPROG: Analytic LO: 11-5 Bloom’s: Knowledge Difficulty: Easy

25. ________________ is important because what we do today will affect future generations.
a. Customer churn
b. Sustainable development
c. An offshore factory
d. Progressive design
ANS: B PTS: 1
BUSPROG: Ethics LO: 11-6 Bloom’s: Comprehension Difficulty: Easy
 26. Which of the following is a critical issue in sustainable development?
a. Labor and legal problems
b. Countertrade
c. Climate change
d. Supply base optimization
ANS: C PTS: 1
BUSPROG: Ethics LO: 11-6 Bloom’s: Knowledge Difficulty: Easy

27. According to the text, the development of cleaner, more fuel-efficient affordable energy technologies
and renewable energy technologies will:
a. Not have an impact on the supply chain
b. Increase the cost of production and distribution
c. Decrease the costs in the supply chain
d. Cause companies to shut down
ANS: C PTS: 1
BUSPROG: Ethics LO: 11-6 Bloom’s: Comprehension Difficulty: Easy

SHORT ANSWER

1. What are the three levels of any location decision?

ANS:
The global market or country selection
The sub-region or state selection
The community and site selection

PTS: 5
BUSPROG: Communication LO: 11-2 Bloom’s: Knowledge Difficulty: Easy

2. When an organization is considering future facility locations, provide three human resource related
issues that the organization would need to consider.

ANS:
While there are a number of possible answers this question, some of the more basic answers discussed
in the textbook include:
a. Cost of Labor
b. Employee pool skill set
c. Employee pool education level
d. Are right-to-work laws/labor unions legal in the location considered.
e. Quality-of-life issues for employees  schools, taxes, housing, natural environment,
public safety, and health.

PTS: 5
BUSPROG: Diversity LO: 11-2 Bloom’s: Comprehension Difficulty: Moderate

3. What specific advantages would a Free Trade Zone offer a manufacturing company? Also, under
which circumstances would a company utilize a Free Trade Zone?

ANS:
 A free trade zone offers a manufacturing firm the ability to import components or subassemblies into a
designated area without paying any import related tariffs on the condition that any subassemblies or
end items assembled in the designated free trade zone will be exported to customers in other countries.

A company would seek to utilize a free trade zone when import tariffs for subassemblies or
components were considerable and somewhat significant amount of product was going to ultimately be
re-exported. This allows a company to avoid the opportunity cost associated with paying the import
tariffs.

PTS: 5
BUSPROG: Diversity LO: 11-3 Bloom’s: Comprehension Difficulty: Moderate

4. Lovely Tee is looking to open a new fulfillment center as part of their expanding network to meet
faster delivery needed for their prime customers in Arizona. To assist the company in deciding where
to locate this new fulfillment center, three sites have been identified with the information shown
below. Use the weighted-factor rating model to answer the questions below.

Critical Location Factor Weight Tempe Lakes Paradise Valley Moon Valley
Factors (Sum to 1) Scores Scores Scores
(1–100) (1–100) (1–100)
Labor availability 0.25 85 90 70
Proximity to market 0.20 100 80 80
Supplier base 0.15 90 100 90
Taxes 0.20 80 70 80
Utilities 0.05 75 85 75
Transportation 0.15 90 75 85

a. What are the scores for each location?

b. Which location should be chosen?

ANS:
a. Tempe Lakes score is 88. Paradise Valley score is 83. Moon Valley score is 79.5
b. Tempe Lakes should be chosen for the location of the new fulfillment center.

PTS: 5
BUSPROG: Analysis LO: 11-4 Bloom’s: Application Difficulty: Moderate

5. Briefly define a business cluster. Give a location that exemplifies a real-life example of a business
cluster, which is not listed in the textbook. Describe why it should be considered a business cluster.

ANS:
Business cluster - Geographic concentration of interconnected firms in a particular field

Some possible examples:

Hollywood  Film industry
Silicon Valley  Software and technology
Las Vegas  Casino industry
Mexico  Electronic manufacturers
Vietnam – Garment manufacturers

PTS: 5
BUSPROG: Communication LO: 11-5 Bloom’s: Application Difficulty: Moderate
ESSAY

1. Suppose a company in the United States was trying to decide whether to locate their manufacturing
facility in the United States or in Southeast Asia. Consider the following information in answering the
question below:
 Presently, this US company, which makes only one type of finished good, sells 40% of
their product in the United States, 10% of the product in Mexico, 15% of their product in
Canada, and 35% of their product to the rest of the world.
 The product this company produces is presently tariffed heavily when imported into the
United States.
 The product consists of about 150 components of which 75 components are imported
from Southeast Asia, 40 components are imported from Mexico, and 35 components
come from US suppliers.

List four reasons why it would be favorable to locate the new manufacturing facility in the United
States rather than in Southeast Asia.

ANS:
1. Proximity to markets  by locating the facility in United States this company will be
locating finished goods near 65% of its customers (US, Canada, Mexico).

2. NAFTA  65% of this company's products are sold in either the United States, Mexico,
or Canada. NAFTA allows product to flow freely between these three countries.

3. Utilities  the infrastructure of United States is among the best in the world. It is highly
likely that all your utility requirements would be met by most US locations.

4. Quality-of-life issues  if this company is headquartered in United States and would like
to maintain American management, it is likely that many of the employees would prefer
the new location to be in United States. These employees are most likely comfortable
with the government stability, housing, health care, culture, and public safety they are
accustomed to two in United States.

5. Lead times  lead times associated with purchases made from US and Mexican suppliers
would most likely be quite favorable.

6. Labor force  The US labor force is considered among the most productive, well-
trained, and well-educated labor forces in the world.

7. Right to work laws  there are number of states in United States that now allow workers
to choose whether or not they want to join/support the union. This allows the US
company to hire skilled and educated workers at somewhat reasonable wages.

8. Free trade zones  This company may have the capability of placing a facility within a
free trade zone that would allow the company to assemble the finished goods that it
would ultimately be exported to foreign customers.

PTS: 10
BUSPROG: Communication LO: 11-2 Bloom’s: Application Difficulty: Difficult
2. Your organization is considering building a new automobile manufacturing plant. The company is
considering building their facility in either China or Tennessee (USA).

China is a rapidly expanding economic market, Tennessee is situated in a more mature market in
which other car manufacturers are already located.

Using this limited information and your knowledge of these two options, China and Tennessee,
provide THREE reasonable arguments for each option that relate to supply chain management.

ANS:
Student's individual arguments should be multi-faceted. They should include an amalgamation of the
individual facts listed below. In each case, there are many other arguments possible.

CHINA
1. Enormous population with an enormous number of young people
2. Enormous labor pool
3. Growing economy with relatively few vehicles
4. Relatively low labor costs
5. China is now the world's third largest automaker
6. Low cost Parts/Component suppliers available
7. Developing supply chain infrastructure
8. Government's commitment to economic growth

In other words, China has positives in the areas of purchasing, manufacturing, and logistics. In
addition, there are large advantages associated with a growing demand which will likely substantiate
any/most supply chain investments.

TENNESSEE
1. Mature market that heavily utilizes vehicles
2. Strong stable economy relative to all other nations
3. Experienced and skilled workforce and business management
4. Well developed supply chain infrastructure
5. Well developed distribution system
6. Government's commitment to economic growth
7. Large number of experienced suppliers

In other words, Tennessee will be more expensive but the risk level is lower from a logistical
standpoint and also from an economic standpoint. Also, just like in certain regions of China there are
advantages that would be associated with business clusters.

PTS: 10
BUSPROG: Diversity LO: 11-2 Bloom’s: Application Difficulty: Difficult

3. If a country is seeking to attract foreign investment in the form of manufacturing related facilities,
explain three things the government might do to increase the chances of this occurring.

ANS:
While there are a number of possible answers this question, some of the more basic answers discussed
in the textbook include:
a. FTZs: Establishing Free Trade Zones

b. TRADE AGREEMENTS: Developing regional and/or international trade agreements

with countries that routinely supply or purchase products or services from the country in
question.
 c. TARIFFS: Establishing import tariffs in the hopes that international manufacturers
might hope to locate domestically in order to avoid the import tariffs.

d. LABOR: Creating laws that create a more competitive labor situation: reducing
minimum wages, promoting right to work laws, improving the education and skill set of
the labor force through government programs.

e. ENVIRONMENT: Creating laws that create a more competitive market in terms of

environmental issues.

f. INFRASTRUCTURE: Developing the country's infrastructure: utility network, roads,

ports, airports, pipelines.

PTS: 10
BUSPROG: Diversity LO: 11-3 Bloom’s: Comprehension Difficulty: Moderate

4. Bimino Corp is considering building a new bottling plant. They have collected information on fixed
and variables costs for 4 potential plant locations.

LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS

A $250,000 $11
B $100,000 $32
C $150,000 $20
D $200,000 $35

a. Plot the total cost curves for the four plant locations on a single graph.

b. Find the break-even points and determine the range of demand for which each location has a
cost advantage.

c. Which plant location is best if demand is 8,000 units?

ANS:
a) Plot the 4 graphs as shown below.
TCA = 250,000+11Q; TCB = 100,000+32Q; TCC = 150,000+20Q; TCD = 200,000+35Q
 $800,000

$700,000

$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

$0
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Location A Location B Location C Location D

b) Breakeven point between Locations A and B.

TCA = TCB
250,000+11Q = 100,000+32Q
21Q = 150,000
Q = 7,143 units
This indicates that producing less than 7,143 units per year would be cheaper at location B, while
producing more than 7,143 units per year would be cheaper at location A.

Breakeven point between Locations B and C.

TCB = TCC
100,000+32Q = 150,000+20Q
12Q = 50,000
Q = 4,167
This indicates that producing less than 4,167 units per year would be cheaper at location B, while
producing more than 4,167 units per year would be cheaper at location C.

Breakeven point between Locations A and C.

TCA = TCC
250,000+11Q = 150,000+20Q
9Q = 100,000
Q = 1,111 units
This indicates that producing less than 11,111 units per year would be cheaper at location C, while
producing more than 11,111 units per year would be cheaper at location A.

Breakeven point between Locations A and D.

TCA = TCD
250,000+11Q = 200,000 + 35Q
24Q = 50,000
Q = 2,083 units
This indicates that producing less than 2,083 units per year would be cheaper at location D, while
producing more than 2,083 units per year would be cheaper at location A.
Breakeven point between Locations B and C.

This indicates that producing less than 2,083 units per year would be cheaper at location B, while
producing more than 5,000 units per year would be cheaper at location C.

c) When demand is 8,000 units, the costs for the different locations are shown below.
Location Annual Fixed Costs Unit Variable Costs Total Costs
A $250,000 $11 $338,000
B $100,000 $32 $356,000
C $150,000 $20 $310,000
D $200,000 $35 $480,000

Location C has the lowest total cost and is best when demand is 8,000 units.

PTS: 10
BUSPROG: Communication LO: 11-4 Bloom’s: Application Difficulty: Difficult