PLANT LOCATION

1. Various costs and other considerations have been listed below as regards to locations 1
and 2. It is required to determine the overall best location.
Factors Location – 1 Location – 2

Cost of (Rs.) (Rs.)

a. Land 100,000 90,000
b. Building 1,200,000 1,300,000
c. Water 5,000 6,000
d. Power 15,000 17,000
e. Labor 140,000 120,000
f. Freight
i) In – coming 120,000 110,000
ii) Out – going 160,000 150,000
g. Fuel 40,000 35,000
h. Raw materials and
other supplies 140,000 130,000
i. Taxes 4,000 2,000
Total Cost 1,924,000 1,960,000
j. Community facilities Good Excellent
k. Community attitude Alright Encouraging
l. Housing facilities Very Good Good
m. Cost of living High Normal
n. Community size Small Medium

Solution: Location 2

2. From the following data select the most advantageous location for setting a plant for
making transistor radios.
Site – X Site – Y Site - Z
Rs. Rs. Rs.
i) Total initial investment 2,00,000 2,00,000 2,00,000
ii) Total expected sales for
the period 2,50,000 3,00,000 2,50,000
iii) Distribution Expenses 40,000 40,000 75,000
iv) Raw material expenses 70,000 80,000 90,000
v) Power and water supply
expenses 40,000 30,000 20,000
vi) Wages and salaries 20,000 25,000 20,000
vii) Other expenses 25,000 40,000 30,000
viii) Community attitude Indifferent Want Indifferent
Business
ix) Employee Housing Poor Excellent Good
Solution: Site Y.

3. Potential locations A, B and C have the cost structures shown below for manufacturing
a product expected to sell for Rs. 2700 per unit. Find the most economical location for an
expected volume of 2000 units per year.

Site Fixed Cost/Year (Rs.) Variable Cost/Unit (Rs.)

A 6,000,000 1500
B 7,000,000 500
C 5,000,000 4000

Solution: Site B

4. Potential locations A, B, and C have the cost structure shown in the following table.
Analyze and find out the yearly economic volume of production for each location.
Assume the following data as economic volume of production: a) 0 – 500 units b) 500 –
1000 units c) more than 1000 units.
Sites Fixed Cost/Year (Rs.) Variable Cost/Unit (Rs.)
A 20,000 140
B 60,000 60
C 80,000 40

Solution: Site A for 0 to 500, B for 500 to 1000 and C for more than 1000 units

5. Potential locations Birgunj, Kathmandu and Pokhara have the cost structure shown for
producing telecommunication set expected to sell for Rs. 90. Find the most economical
location for an expected volume of 1850 units/year.
Site Fixed cost/year (Rs.) Variable cost/unit (Rs)
Birgunj 20,000 50
Kathmandu 40,000 30
Pokhara 80,000 10

Solution: Kathmandu

6. Potential locations X, Y and Z have the cost structure shown in the table. For which
yearly volume of production would location Y be more economical?
Site Fixed cost/year (Rs.) Variable cost/unit (Rs.)
X 8,000 65
Y 28,000 25
Z 38,000 15
i) 0 – 500 units ii) ≤ 600 units iii) 500 – 1000 units iv) 600 – 1000 units v) ≥ 1000 units

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