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Questions and Answers
The factor-rating method evaluates locations only based on quantitative factors.
False
Free trade zones offer tax benefits and customs advantages for businesses using imported components.
True
The presence of skilled labor is not considered an important factor in choosing a facility location.
False
Political stability does not affect location decisions for multinational companies.
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Capacity constraints can serve as a motivation for companies to relocate their operations.
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Environmental regulations can impact business costs and community relations.
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The primary goal for retail operations in location decisions is cost minimization.
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Location decisions are driven by factors such as shifts in customer demand and changes in labor costs.
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Locational break-even analysis solely evaluates fixed costs and does not consider variable costs.
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The center of gravity method only focuses on the distances between existing facilities without considering shipment volumes.
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The primary goal of location analysis in the service sector is to maximize revenue.
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Linear programming can help determine the most cost-effective location by testing the impact of different candidate locations.
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The total cost of production is determined by the formula TC = FC + VC X Q.
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The graphic approach to locational break-even analysis provides a specific cost for each volume level.
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The break-even point is defined as the volume where total revenue is greater than total cost.
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When volume exceeds the break-even point, a company incurs a loss.
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A favorable business climate can include the presence of similar sized businesses.
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The volume required to generate a specified profit is unrelated to the break-even point.
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To reduce total costs, a plant should be located as far away from its customers as possible.
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The formula for total profit (P) includes both total revenue (TR) and total cost (TC).
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Infrastructure does not significantly impact facility location decisions.
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Study Notes
Location Factors
- Labor: Skilled labor, willingness to learn, education levels are important factors.
- Suppliers: Competitive suppliers located nearby are advantageous, allowing for lean production.
- Other Facilities: Existing facilities within the same company can influence location decisions due to product mix and capacity considerations.
- Free Trade Zones: Offer tax benefits and customs advantages for manufacturers using imported components.
- Political Risk: Political stability of both the host country and the country of location is a key factor.
- Government Barriers: Legislative and cultural barriers can impact entry and location decisions.
- Environmental Regulations: Compliance with local environmental regulations is essential and can impact costs and community relations.
- Host Community: The local community's interest, educational facilities, and quality of life are important considerations.
- Competitive Advantage: Multinational companies must strategically choose their business home base location.
Strategic Importance of Location
- Location can significantly impact business success.
- Decision-making process varies based on business type.
- Cost minimization is a primary goal for industrial operations, revenue maximization for retail and professional services.
- Warehouses balance cost and speed.
- Location decisions are typically infrequent, driven by factors like capacity constraints, labor or cost changes, and customer demand shifts.
- Companies have three main options: expanding an existing facility, adding a new facility, or relocating to a different location.
Evaluating Location Alternatives
- Four major methods are used for evaluating location alternatives:
- Factor-rating method
- Location break-even analysis
- Center-of-gravity method
- Transportation model
Factor-Rating Method
- Considers qualitative and quantitative factors.
- Managers assign weights to each factor, making the decision process more objective.
Location Break-Even Analysis
- Uses cost-volume analysis for economic comparison of location alternatives.
- Identifies fixed and variable costs for each location.
- Determines the lowest cost location.
- Can be done mathematically or graphically.
Linear Programming (Transportation Model)
- Tests the cost impact of different candidate locations on the entire production-distribution network.
- Identifies the lowest total cost location for the network.
Center of Gravity Method
- Locates single facilities.
- Considers existing facilities, distances between them, and volumes of goods shipped.
- Often used to locate intermediate or distribution warehouses.
Locating Service Facilities
- Focus is on maximizing revenue, unlike industrial-sector location analysis which focuses on minimizing costs.
- Location often has more impact on revenue than cost for service firms.
- Location choices should focus on determining the volume of business and revenue.
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Description
Explore the crucial location factors that affect business decision-making. From labor and suppliers to political risks and environmental regulations, this quiz delves into how these elements influence site selection for companies. Test your understanding of the dynamics that shape successful business operations.
