Chapter 08 Location Planning and Analysis True / False Questions 1. Location decisions are basically one-time decisions usually made by new organizations. FALSE TLO: 1 2. The fact that most types of firms are located in every section of the country suggests that in many cases, location decisions are not overly important; one location typically is as good as another. FALSE TLO: 2 3. You can't make a mistake by locating where labor costs are low. FALSE 4. Advanced communications has aided globalization. TRUE TLO: 3 8-1
5. The first step in developing location alternatives is identifying important factors. FALSE Difficulty: Hard 6. An example of a regional factor in location planning is the location of our markets (either existing or potential). TRUE 7. A strategy that emphasizes convenience for the customers would probably select a single very large facility. FALSE 8. For service organizations, the dominant factors in location analysis usually are marketrelated. TRUE 8-2
9. Global Positioning Systems (GPS) use the Center of Gravity method to establish starting grid co-ordinates FALSE 10. Labor laws are an important site-related factor. FALSE 11. Web-based, retail businesses should be located near the customer to reduce their long distance phone charges. FALSE 12. For service and retail stores, a prime factor in location analysis is customer access. TRUE 13. Retail businesses generally prefer locations that are not near other retailers, as this reduces their competition. FALSE 8-3
14. Technology has made communication with global operations as easy as local communication. FALSE AACSB: RT TLO: 3 15. Factor rating is limited to quantitative information concerning location decisions. FALSE Difficulty: Hard 16. As a result of the factor rating analysis, a manager may sometimes reject all of the alternatives under consideration when the composite scores are below the minimum threshold value. TRUE 17. The lower cost of foreign labor is often offset by lower levels of productivity. TRUE AACSB: MD 8-4
18. The center of gravity method is a location planning technique that determines a composite score from weighted factor evaluation. FALSE 19. The center of gravity method is useful in location planning for the location of a distribution center. TRUE 20. The center of gravity method of location planning is accurate only when the quantities to be shipped to each location are equal. FALSE 21. Location decisions are closely tied to an organization's strategies. TRUE TLO: 1 8-5
22. A "micro-factory" is a small, automated facility with a narrow product focus located near major markets. TRUE TLO: 3 23. One of the reasons for the importance of location decisions is its strategic importance to the supply chains. TRUE AACSB: RT TLO: 2 Multiple Choice Questions 24. Nearness to raw materials would be most important to a A. grocery store B. tax preparation service C. manufacturing company D. post office E. hospital 8-6
25. A one-hour photo processing machine in a Wal-Mart store is an example of a. A. micro-factory B. downsize strategy C. diversified strategy D. lean production system E. falling price strategy TLO: 3 26. Which statement best characterizes a typical search for location alternatives? A. identify the best location choice B. minimize cost consequences C. maximize associated profits D. locate near markets E. identify acceptable locations 27. Which of the following is not a location option that management can consider in location planning? A. expand an existing facility B. add a new location C. relocate from one location to another D. do nothing E. All are possible options. TLO: 3 8-7
28. Which of the following is the last step in the procedure for making location decisions? A. determine the evaluation criteria B. identify important factors C. develop location alternatives D. evaluate alternatives and make a selection E. request input regarding alternatives 29. When a location evaluation includes both quantitative and qualitative inputs, a technique that can be used is. A. Linear programming B. Consumer surveys C. Factor rating D. Transportation models E. Center of gravity methods 30. The center of gravity method is used to travel time, distance and costs. A. Normalize B. Eliminate C. Average D. Minimize E. Document 8-8
31. In location planning, the location of raw materials, the location of markets, and labor factors are: A. regional factors B. community factors C. site-related factors D. national factors E. minor considerations 32. Software systems known as GIS help in location analysis. The initials GIS stand for. A. Graphic Interface Systems B. Global Integrated Software C. Graded Information Systems D. Geo Intensive Software E. Geographical Information System 33. Facilities, personnel and operations that are located around the world are called: A. non-domestic B. diversified operations C. globalization D. worldwide presence E. virtual organization TLO: 3 8-9
34. Some communities offer financial and other incentives to new businesses. A. Tax B. Attract C. Marginalize D. Incorporate E. Zone 35. Location options don't usually include: A. expansion B. a contract C. adding new facilities D. moving E. doing nothing Difficulty: Hard TLO: 3 36. Cultural differences, Customer preferences, Labor and Resources are factors relating to: A. Regional choices B. Site selection C. Zoning D. Product design E. Foreign locations Difficulty: Hard 8-10
37. The method for evaluating location alternatives which uses their total cost curves is: A. cost-volume analysis B. transportation model analysis C. factor rating analysis D. linear regression analysis E. MODI analysis 38. The method for evaluating location alternatives which minimizes shipping costs between multiple sending and receiving locations is: A. cost-volume analysis B. transportation model analysis C. factor rating analysis D. linear regression analysis E. MODI analysis 39. The method for evaluating location alternatives which uses their composite (weightedaverage) scores is: A. cost-volume analysis B. transportation model analysis C. factor rating analysis D. linear regression analysis E. MODI analysis 8-11
40. An approach to location analysis that can include both qualitative and quantitative considerations is: A. location cost-volume B. factor rating C. transportation model D. expected value (net present value) E. financial analysis 41. A location analysis has been narrowed down to two locations, Akron and Boston. The main factors in the decision will be the supply of raw materials, which has a weight of.50, transportation cost, which has a weight of.40, and labor cost, which has a weight of.10. The scores for raw materials, transportation, and labor are for Akron 60, 80, and 70, respectively; for Boston 70, 50, and 90, respectively. Given this information and a minimum acceptable composite score of 75, we can say that the manager should: A. be indifferent between these locations B. choose Akron C. choose Boston D. reject both locations E. build a plant in both cities Difficulty: Hard Essay Questions 8-12
42. A manager must decide between two location alternatives, Boston and Chicago. Boston would have annual fixed costs of $70,000, transportation costs of $60 per unit, and labor and material costs of $200 per unit. Chicago would have annual fixed costs of $90,000, transportation costs of $40 per unit, and labor and material costs of $170 per unit. Revenue will be $300 per unit. (A) Which alternative would yield the higher profit for an annual demand of 3,000 units? (B) Would the two locations yield the same profit at a certain volume? If so, at what volume would that be? A) At a volume of 3,000 units, Boston's profit would be $50,000 and Chicago's profit would be $180,000. B) At an annual volume of 400 units, both locations would have identical losses of $54,000. 8-13
43. A firm is trying to decide between two location alternatives, Albany and Baltimore. Albany would result in annual fixed costs of $60,000, labor costs of $7 per unit, material costs of $10 per unit, transportation costs of $15 per unit, and revenue per unit of $50. Baltimore would have annual fixed costs of $80,000, labor costs of $6 per unit, material costs of $9 per unit, transportation costs of $14 per unit, and revenue per unit of $48. (A) At an annual volume of 9,000, which would yield the higher profit? (B) At what annual volume would management be indifferent between the two alternatives in terms of annual profits? A) At an annual volume of 9,000, Albany's profit of $102,000 is higher than Baltimore's profit of $91,000. B) Profits for these two locations are identical at an annual volume of 20,000 units. 44. Given the information below on scores of three location alternatives, which alternative would you recommend? Why? Composite scores are: A = 72, B = 69, and C = 69. If the criterion is highest composite, choose A. 8-14
45. Determine the center of gravity location for the destinations and shipping quantities shown below: 8-15
46. Determine the optimum location for a distribution center to serve the following locations. Shipments to each location will be approximately equal. Multiple Choice Questions The Skulls, a student social organization, has two different locations under consideration for constructing a new chapter house. Skull's president, a POM student, estimates that due to differing land costs, utility rates, etc., both fixed and variable costs would be different for each of the proposed sites, as follows: 8-16
47. What would be total annual costs for the Alpha Ave. location with twenty persons living there? A. $5,400 B. $4,000 C. $5,000 D. $7,000 E. $9,000 48. What would be total annual costs for either location at the point of indifference? A. $13,000 B. $13,350 C. $9,000 D. $17,000 E. $19,200 49. If it is estimated that thirty persons will be living in this new chapter house, which location should the Skulls select? A. Alpha Ave. B. Beta Blvd. C. either Alpha Ave. or Beta Blvd. D. reject both Alpha Ave. nor Beta Blvd. E. become a virtual organization 8-17
50. If it is estimated that thirty persons will be living in this new chapter house, what would be the Skull's annual cost savings by selecting the less costly location, rather than the more costly? A. $0 B. $1,500 C. $200 D. $150 E. $350 Essay Questions 51. What are total costs for site A for a quantity of 5,000 units per year? $150,000 8-18
52. What are total costs for site B for a quantity of 5,000 units per year? $160,000 53. What are total costs for site C for a quantity of 5,000 units per year? $185,000 54. For what quantity would you be indifferent between selecting site A or site B? 10,000 units per year 55. For what quantity would you be indifferent between selecting site B or site C? 30,000 units per year 8-19
56. For what range of output would you prefer site A? 1-9,999 57. For what range of output would you prefer site B? 10,001-29,999 58. For what range of output would you prefer site C? 30,001 and above 59. Which site would you prefer for a quantity of 20,000 units per year? B 8-20
60. For the preferred site for 20,000 units per year, what would be your total costs? $280,000 61. For the preferred site for 20,000 units per year, what would be your cost savings compared to each of the other two sites? $20,000 vs. A; $10,000 vs. C Multiple Choice Questions A manufacturing firm is considering two locations for a plant to produce a new product. The two locations have fixed and variable costs as follows: 8-21
62. At what annual output would the company be indifferent between the two locations? A. 60,000 units B. 15,000 units C. 10,000 units D. 20,000 units E. 4,000 units 63. What would the total annual costs be for the Phoenix location with an annual output of 10,000 units? A. $280,000 B. $140,000 C. $220,000 D. $300,000 E. $156,000 64. What would be the total annual costs at the point of indifference? A. $300,000 B. $240,000 C. $380,000 D. $220,000 E. $760,000 8-22
65. If annual demand is estimated to be 20,000 units, which location should the company select? A. Atlanta B. Phoenix C. either Atlanta or Phoenix D. reject both Atlanta and Phoenix E. build at both locations 66. If the annual demand will be 20,000 units, what would be the cost advantage of the better location? A. $20,000 B. $460,000 C. $480,000 D. $80,000 E. $60,000 A location analysis has been narrowed down to three locations. The critical factors, their weights, and the ratings for each location are shown below: 8-23
67. What is the composite score for location A? A. 76 B. 75 C. 78 D. 74 E. 76.33 68. What is the composite score for location B? A. 76 B. 75 C. 78 D. 74 E. 76.33 69. What is the composite score for location C? A. 76 B. 75 C. 78 D. 74 E. 76.33 8-24
70. If the selection criteria is to be the greatest composite score, management should choose: A. location A B. location B C. location C D. either B or C E. to reject all locations 71. If the decisions rule is to select the location with the greatest composite score exceeding 80, management should choose: A. location A B. location B C. location C D. either B or C E. to reject all locations A clothing manufacturer produces clothing in five locations in the U. S. In a move to vertical integration, the company is planning a new fabric production plant that will supply fabric to all five clothing plants. The clothing plants have been located on a coordinate system as follows: 8-25
72. If the amount of fabric shipped to each plant is equal, what is the optimal location for the fabric plant? A. 5, 5 B. 6, 4 C. 4, 6 D. 6, 2 E. 5, 4 73. Shipments of fabric to each plant vary per week as follows: plant A, 200 units; plant B, 400 units; plant C, 300 units; plant D, 300 units; and plant E, 200 units. What is the optimal location for the fabric plant? A. 6.2, 3.0 B. 6.0, 4.0 C. 6.5, 5.3 D. 5.6, 4.4 E. 5.0, 3.0 A hardware distributor has regional warehouses at the locations shown below. The company wants to locate a new central distribution center to serve this warehouse network. 8-26
74. If weekly shipments to each warehouse will be approximately equal, what is the optimal location for the distribution center? A. 5, 5 B. 5, 4 C. 4, 5 D. 5, 6 E. 6, 5 75. Weekly shipments to each warehouse will be: WH1, 100; WH2, 150; WH3, 120; WH4, 150; and WH5, 120. What is the optimal location of the distribution center? A. 5.1, 4.2 B. 5.2, 4.0 C. 5.1, 5.1 D. 4.2, 5.1 E. 4.9, 5.2 8-27