40) A small producer of music boxes wants to move to a larger facility. Two alternative facilities have
been found. Site 1 has a fixed cost of $500,000 per year, with a variable cost of $25 per unit. Site 2 has a
fixed cost of $800,000 per year, but a variable cost of $22 per unit.
a. Write out the equation for total cost for each site.
b. At what volume of output would the two locations have the same total cost?
c. For what range of output would Site 1 be superior?
d. For what range of output would Site 2 be superior?
41) A small manufacturer is considering several locations for a new facility. They have identified four
factors that they consider to be important for their location decision. They have decided to assign scores
to the four factors, with a higher score indicating a more favorable location. Use the information in the
following table to perform a factor rating to select the best location.
Weight Location A Location B Location C
Wages 40 30 75 90
Labor Climate 30 40 70 40
Taxes 15 80 40 90
Utilities 15 75 60 10
42) A contractor for the military is looking for a new location for a supply depot. The depot will supply
four bases whose tonnage (demand) and map coordinates are shown below. If management wants the
depot to have a central location, what should be its map coordinates?
Bases (X,Y) Coordinates Tonnage
Fort Able (40,110) 30,000
Base Baker (70, 50) 60,000
Camp Charlie (90, 20) 35,000
Camp Delta (70, 80) 75,000
43) A highway contractor needs to locate a single supply point to provide road building materials to four
projects. The four projects, which are all approximately the same magnitude, are located at the following
coordinates. Coordinate units are in miles.
X (East) Y (North)
Project A 50 10
Project B 15 60
Project C 40 60
Project D 30 20
a. What is the center of gravity?
b. If a single truck were sent from center–of-gravity to each project and back (four round trips), how
many miles would be traveled? (Hint: use the Pythagorean Theorem C = ).
44) Every month, a distribution center will deliver 14,000 units to Retailer A at coordinates (20, 10), 12,000
units to Retailer B at coordinates (30, -15), and 20,000 units to Retailer C at coordinates (4, 4). Assuming
no constraints on location, at what coordinates should the distribution center be located (rounded to two
decimal places)?
45) A school district is considering where in town to house its central office (The office must also be
located at an existing school for cost reasons). If there are five schools in the district, with locations and
size given in the following table, use the center–of-gravity method to determine at which school the
central office should be placed to minimize the average distance between the office and students.
Location (X,Y) Size (Enrollment)
A (5,5) 2500
B (0,5) 1000
C (0,0) 10,000
D (5,0) 4500
E (2,1) 7500
46) A school district is considering four locations for a new high school. There are four factors the district
is considering (cost of land, distance to students, land size, and traffic flow). The higher the factor score,
the better. The district would like to compare results using two weighting systems. The first system
would give each factor equal weight and the second would give the factors weights of .4, .2, .1, and .3
respectively. Use the factor rating method to determine which location is best for each weighting system.
(Note that the weights for system 1 can be anything, as long as they’re equal.)
Factor W(1) W(2) A B C D
Cost of Land 1 .4 10 20 25 5
Distance to Students 1 .2 30 25 15 20
Land Size 1 .1 5 10 20 40
Traffic Flow 1 .3 20 5 15 30
47) 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.
Option FC ($) VC ($/unit)
A 50000 2
B 100000 1
C 60000 1.4
48) A grocery chain is deciding on where to locate its new distribution center (DC). The new DC will
serve four grocery stores, each with a demand of 10,000 units. If the coordinates of the stores are
(112,108), (110,50), (40, 85), and (10, 25) where should the DC be located? Suppose now that each store
instead had demand of 20,000 units. Where should the DC go in this case?
49) Suppose that a bus company is deciding where to locate its central hub. There are 6 possible
destinations for the buses. Suppose that the center of town will be used as the reference for describing the
possible destinations. A is located 5 miles South and 3 miles West. B is located 3 miles North and 2 miles
East. C is located 1 mile South and 5 miles East. D is located 2 miles North and 3 miles West. E is located
exactly in the center of town. F is located 10 miles North and 5 miles East. Assume that traffic to each
destination will be equal. Where should the hub go so that travel time is minimized?
Section 4 Service Location Strategy
1) Service firms choose locations based, in part, on the revenue potential of a site.
2) The location decisions of goods-producing firms will generally pay more attention to parking, access,
and traffic counts than will service location decisions.
3) Location decisions of goods-producing companies often assume that costs are relatively constant for a
given area; therefore, the revenue function is critical.
4) Which of the following is NOT among the eight determinants of revenue and volume for a service
firm?
A) quality of management
B) shipment cost of finished goods
C) purchasing power of the customer-drawing area
D) uniqueness of the firm’s and the competitors’ locations
E) competition in the area
5) Which of the following is among the eight determinants of revenue and volume for a service firm?
A) uniqueness of the firm‘s and the competitors’ locations
B) quality of the competition
C) quality of management
D) purchasing power of the customer-drawing area
E) all of the above
6) Traffic counts and purchasing power analysis of drawing area are techniques associated with:
A) locational cost-volume analysis.
B) a manufacturing location decision.
C) a retail or professional service location decision.
D) the factor-rating method.
E) the transportation model.
7) La Quinta Inns has a competitive edge over its rivals because it:
A) uses regression analysis to determine which variables most influence profitability.
B) has better television advertisements.
C) picks larger locations than its rivals.
D) builds only along interstate highways.
E) consistently receives four-star ratings for its inns.
8) Which of the following is NOT one of the predictive variables chosen by the profitability regression
model used by La Quinta Inns?
A) the price of the inn
B) median income levels
C) the state population per inn
D) the location of nearby colleges
E) the number of inns in a region
9) Traffic counts and demographic analysis of drawing area are associated with:
A) the center-of-gravity method.
B) manufacturing location decisions.
C) service location decisions.
D) the transportation model.
E) locational cost-volume analysis.
10) Location analysis techniques typically employed by service organizations include:
A) the factor rating method.
B) the center-of-gravity method.
C) purchasing power analysis of area.
D) traffic counts.
E) all of the above.
11) Which of the following is most likely to affect the location decision of a service firm rather than a
manufacturing firm?
A) energy and utility costs
B) attitude toward unions
C) parking and access
D) cost of shipping finished goods
E) labor costs
12) Which of the following is a location analysis technique typically employed by a service organization?
A) purchasing power analysis
B) linear programming
C) queuing theory
D) transportation method
E) locational cost-volume analysis
13) A jewelry store is more likely than a jewelry manufacturer to consider ________ in making a location
decision.
A) transportation costs
B) cost of raw materials
C) appearance/image of the location
D) quality of life
E) taxes
14) Which of the following is a location analysis technique typically employed by a manufacturing
organization?
A) transportation method
B) queuing theory
C) correlation analysis and traffic counts
D) simulation
E) demographic analysis
15) Which of the following assumptions is NOT associated with strategies for goods–producing location
decisions?
A) Most major costs can be identified explicitly for each site.
B) Focus on identifiable costs.
C) High customer-contact issues are critical.
D) Intangible costs can be evaluated.
E) Location is a major determinant of cost.
16) Which of the following is most likely to affect the location strategy of a manufacturing firm?
A) appearance/image of the area
B) utility costs
C) purchasing power of drawing area
D) competition in the area
E) parking availability
17) Industrial firms choose locations that minimize cost, but service firms look for locations with good
demographics and traffic count because these variables are indicators of good ________.
18) Service location strategies and goods-producing location strategies rely on very different sets of
assumptions. What are the assumptions associated with goods–producing locations? How do these
assumptions lead to a location strategy?
19) How do service facility location decisions differ from industrial location decisions in terms of the
techniques used to analyze them?
20) Identify the four predictive variables chosen by the profitability regression model used by La Quinta
Inns. Identify some that were tested but not included in the final model.
Section 5 Geographic Information Systems
1) What describes a system that stores and displays information that can be linked to a geographic
location?
A) AIS
B) LOC
C) GLOC
D) LIS
E) GIS
2) Geographic information systems can assist the location decision by:
A) automating center–of-gravity problems.
B) computerizing factor-rating analysis.
C) combining geography with demographic analysis.
D) updating transportation method solutions.
E) providing good Internet placement for virtual storefronts.
3) Databases containing such variables as street maps, utilities, population age and income, and the
software that analyzes such data for location decisions, are referred to as ________.