Location Planning Analysis

Chapter 08 - Location Planning and Analysis
Chapter 08
Location Planning and Analysis

True / False Questions

1. Location decisions are basically one-time decisions usually made by new organizations.
FALSE

Difficulty: Medium
TLO: 1
Taxonomy: Knowledge

2. he !act that most types o! !irms are located in e"ery section o! the country suggests that in
many cases# location decisions are not o"erly important$ one location typically is as good as
another.
FALSE

Difficulty: Medium
TLO: 2
Taxonomy: Knowledge

%. &ou can't ma(e a mista(e by locating where labor costs are low.
FALSE

Difficulty: Medium
TLO: 4
Taxonomy: Knowledge

). Ad"anced communications has aided globalization.
TRUE

Difficulty: Easy
TLO: 3
Taxonomy: Knowledge

8-1
8-2
*. he !irst step in de"eloping location alternati"es is identi!ying important !actors.
FALSE

Difficulty: Had
TLO: !
Taxonomy: Knowledge

+. An e,ample o! a regional !actor in location planning is the location o! our mar(ets -either
e,isting or potential..
TRUE

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

/. A strategy that emphasizes con"enience !or the customers would probably select a single
"ery large !acility.
FALSE

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

8. 0or ser"ice organizations# the dominant !actors in location analysis usually are mar(et-
related.
TRUE

Difficulty: Medium
TLO: 4
Taxonomy: Knowledge

8-%
1. 2lobal Positioning 3ystems -2P3. use the Center o! 2ra"ity method to establish starting
grid co-ordinates
FALSE

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

10. Labor laws are an important site-related !actor.
FALSE

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

11. 4eb-based# retail businesses should be located near the customer to reduce their long
distance phone charges.
FALSE

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

12. 0or ser"ice and retail stores# a prime !actor in location analysis is customer access.
TRUE

Difficulty: Medium
TLO: 4
Taxonomy: Knowledge

1%. 5etail businesses generally pre!er locations that are not near other retailers# as this reduces
their competition.
FALSE

Difficulty: Medium
TLO: 4
Taxonomy: Knowledge

8-)
1). echnology has made communication with global operations as easy as local
communication.
FALSE

""#$%: &T
Difficulty: Easy
TLO: 3
Taxonomy: Knowledge

1*. 0actor rating is limited to 6uantitati"e in!ormation concerning location decisions.
FALSE

Difficulty: Had
TLO: !
Taxonomy: Knowledge

1+. As a result o! the !actor rating analysis# a manager may sometimes re7ect all o! the
alternati"es under consideration when the composite scores are below the minimum threshold
"alue.
TRUE

Difficulty: Medium
TLO: !
Taxonomy: Knowledge

1/. he lower cost o! !oreign labor is o!ten o!!set by lower le"els o! producti"ity.
TRUE

""#$%: MD
Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

8-*
18. he center o! gra"ity method is a location planning techni6ue that determines a composite
score !rom weighted !actor e"aluation.
FALSE

Difficulty: Easy
TLO: !
Taxonomy: Knowledge

11. he center o! gra"ity method is use!ul in location planning !or the location o! a
distribution center.
TRUE

Difficulty: Easy
TLO: !
Taxonomy: Knowledge

20. he center o! gra"ity method o! location planning is accurate only when the 6uantities to
be shipped to each location are e6ual.
FALSE

Difficulty: Medium
TLO: !
Taxonomy: Knowledge

21. Location decisions are closely tied to an organization's strategies.
TRUE

Difficulty: Easy
TLO: 1
Taxonomy: Knowledge

8-+
22. A 8micro-!actory8 is a small# automated !acility with a narrow product !ocus located near
ma7or mar(ets.
TRUE

Difficulty: Easy
TLO: 3
Taxonomy: Knowledge

2%. 9ne o! the reasons !or the importance o! location decisions is its strategic importance to
the supply chains.
TRUE

""#$%: &T
Difficulty: Easy
TLO: 2
Taxonomy: Knowledge

ultiple Choice Questions

2). :earness to raw materials would be most important to a
A. grocery store
;. ta, preparation ser"ice
C! manu!acturing company
<. post o!!ice
=. hospital

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

8-/
2*. A one-hour photo processing machine in a 4al->art store is an e,ample o! a ???.
A! micro-!actory
;. downsize strategy
C. di"ersi!ied strategy
<. lean production system
=. !alling price strategy

Difficulty: Medium
TLO: 3
Taxonomy: Knowledge

2+. 4hich statement best characterizes a typical search !or location alternati"es@
A. identi!y the best location choice
;. minimize cost conse6uences
C. ma,imize associated pro!its
<. locate near mar(ets
E! identi!y acceptable locations

Difficulty: Medium
TLO: !
Taxonomy: Knowledge

2/. 4hich o! the !ollowing is not a location option that management can consider in location
planning@
A. e,pand an e,isting !acility
;. add a new location
C. relocate !rom one location to another
<. do nothing
E! All are possible options.

Difficulty: Medium
TLO: 3
Taxonomy: Knowledge

8-8
28. 4hich o! the !ollowing is the last step in the procedure !or ma(ing location decisions@
A. determine the e"aluation criteria
;. identi!y important !actors
C. de"elop location alternati"es
"! e"aluate alternati"es and ma(e a selection
=. re6uest input regarding alternati"es

Difficulty: Easy
TLO: !
Taxonomy: Knowledge

21. 4hen a location e"aluation includes both 6uantitati"e and 6ualitati"e inputs# a techni6ue
that can be used is ???.
A. Linear programming
;. Consumer sur"eys
C! 0actor rating
<. ransportation models
=. Center o! gra"ity methods

Difficulty: Medium
TLO: !
Taxonomy: Knowledge

%0. he center o! gra"ity method is used to ??????? tra"el time# distance and costs.
A. :ormalize
;. =liminate
C. A"erage
"! >inimize
=. <ocument

Difficulty: Medium
TLO: !
Taxonomy: Knowledge

8-1
%1. An location planning# the location o! raw materials# the location o! mar(ets# and labor
!actors areB
A! regional !actors
;. community !actors
C. site-related !actors
<. national !actors
=. minor considerations

Difficulty: Medium
TLO: 4
Taxonomy: Knowledge

%2. 3o!tware systems (nown as 2A3 help in location analysis. he initials 2A3 stand !or ??.
A. 2raphic Anter!ace 3ystems
;. 2lobal Antegrated 3o!tware
C. 2raded An!ormation 3ystems
<. 2eo Antensi"e 3o!tware
E! 2eographical An!ormation 3ystem

Difficulty: Medium
TLO: !
Taxonomy: Knowledge

%%. 0acilities# personnel and operations that are located around the world are calledB
A. non-domestic
;. di"ersi!ied operations
C! globalization
<. worldwide presence
=. "irtual organization

Difficulty: Medium
TLO: 3
Taxonomy: Knowledge

8-10
%). 3ome communities o!!er !inancial and other incenti"es to ?????? new businesses.
A. a,
#! Attract
C. >arginalize
<. Ancorporate
=. Cone

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

%*. Location options don't usually includeB
A. e,pansion
#! a contract
C. adding new !acilities
<. mo"ing
=. doing nothing

Difficulty: Had
TLO: 3
Taxonomy: Knowledge

%+. Cultural di!!erences# Customer pre!erences# Labor and 5esources are !actors relating toB
A. 5egional choices
;. 3ite selection
C. Coning
<. Product design
E! 0oreign locations

Difficulty: Had
TLO: 4
Taxonomy: Knowledge

8-11
%/. he method !or e"aluating location alternati"es which uses their total cost cur"es isB
A! cost-"olume analysis
;. transportation model analysis
C. !actor rating analysis
<. linear regression analysis
=. >9<A analysis

Difficulty: Easy
TLO: !
Taxonomy: Knowledge

%8. he method !or e"aluating location alternati"es which minimizes shipping costs between
multiple sending and recei"ing locations isB
A. cost-"olume analysis
#! transportation model analysis
C. !actor rating analysis
=. >9<A analysis

Difficulty: Medium
TLO: !
Taxonomy: Knowledge

%1. he method !or e"aluating location alternati"es which uses their composite -weighted-
a"erage. scores isB
A. cost-"olume analysis
;. transportation model analysis
C! !actor rating analysis
=. >9<A analysis

Difficulty: Medium
TLO: !
Taxonomy: Knowledge

8-12
)0. An approach to location analysis that can include both 6ualitati"e and 6uantitati"e
considerations isB
A. location cost-"olume
#! !actor rating
C. transportation model
<. e,pected "alue -net present "alue.
=. !inancial analysis

Difficulty: Medium
TLO: !
Taxonomy: Knowledge

)1. A location analysis has been narrowed down to two locations# A(ron and ;oston. he
main !actors in the decision will be the supply o! raw materials# which has a weight o! .*0#
transportation cost# which has a weight o! .)0# and labor cost# which has a weight o! .10. he
scores !or raw materials# transportation# and labor are !or A(ron +0# 80# and /0# respecti"ely$
!or ;oston /0# *0# and 10# respecti"ely. 2i"en this in!ormation and a minimum acceptable
composite score o! /*# we can say that the manager shouldB
A. be indi!!erent between these locations
;. choose A(ron
C. choose ;oston
"! re7ect both locations
=. build a plant in both cities

""#$%: "$
Difficulty: Had
TLO: '
Taxonomy: "((lication

Essay Questions

8-1%
)2. A manager must decide between two location alternati"es# ;oston and Chicago. ;oston
would ha"e annual !i,ed costs o! D/0#000# transportation costs o! D+0 per unit# and labor and
material costs o! D200 per unit. Chicago would ha"e annual !i,ed costs o! D10#000#
transportation costs o! D)0 per unit# and labor and material costs o! D1/0 per unit. 5e"enue
will be D%00 per unit.
-A. 4hich alternati"e would yield the higher pro!it !or an annual demand o! %#000 units@
-;. 4ould the two locations yield the same pro!it at a certain "olume@ A! so# at what "olume
would that be@
A. At a "olume o! %#000 units# ;oston's pro!it would be D*0#000 and Chicago's pro!it would
be D180#000.
;. At an annual "olume o! )00 units# both locations would ha"e identical losses o! D*)#000.

""#$%: "$
Difficulty: Medium
TLO: '

8-1)
)%. A !irm is trying to decide between two location alternati"es# Albany and ;altimore.
Albany would result in annual !i,ed costs o! D+0#000# labor costs o! D/ per unit# material costs
o! D10 per unit# transportation costs o! D1* per unit# and re"enue per unit o! D*0. ;altimore
would ha"e annual !i,ed costs o! D80#000# labor costs o! D+ per unit# material costs o! D1 per
unit# transportation costs o! D1) per unit# and re"enue per unit o! D)8.
-A. At an annual "olume o! 1#000# which would yield the higher pro!it@
-;. At what annual "olume would management be indi!!erent between the two alternati"es in
terms o! annual pro!its@
A. At an annual "olume o! 1#000# Albany's pro!it o! D102#000 is higher than ;altimore's pro!it
o! D11#000.
;. Pro!its !or these two locations are identical at an annual "olume o! 20#000 units.

""#$%: "$
Difficulty: Medium
TLO: '

)). 2i"en the in!ormation below on scores o! three location alternati"es# which alternati"e
would you recommend@ 4hy@

Composite scores areB A E /2# ; E +1# and C E +1. A! the criterion is highest composite#
choose A.

""#$%: "$
Difficulty: Medium
TLO: '

8-1*
)*. <etermine the center o! gra"ity location !or the destinations and shipping 6uantities
shown belowB

""#$%: "$
Difficulty: Medium
TLO: '

8-1+
)+. <etermine the optimum location !or a distribution center to ser"e the !ollowing locations.
3hipments to each location will be appro,imately e6ual.

""#$%: "$
Difficulty: Medium
TLO: '


he 3(ulls# a student social organization# has two di!!erent locations under consideration !or
constructing a new chapter house. 3(ull's president# a P9> student# estimates that due to
di!!ering land costs# utility rates# etc.# both !i,ed and "ariable costs would be di!!erent !or each
o! the proposed sites# as !ollowsB

8-1/
)/. 4hat would be total annual costs !or the Alpha A"e. location with twenty persons li"ing
there@
A. D*#)00
;. D)#000
C. D*#000
<. D/#000
E! D1#000

""#$%: "$
Difficulty: Medium
TLO: '

)8. 4hat would be total annual costs !or either location at the point o! indi!!erence@
A. D1%#000
;. D1%#%*0
C. D1#000
"! D1/#000
=. D11#200

""#$%: "$
Difficulty: Medium
TLO: '

)1. A! it is estimated that thirty persons will be li"ing in this new chapter house# which
location should the 3(ulls select@
A! Alpha A"e.
;. ;eta ;l"d.
C. either Alpha A"e. or ;eta ;l"d.
<. re7ect both Alpha A"e. nor ;eta ;l"d.
=. become a "irtual organization

""#$%: "$
Difficulty: Medium
TLO: '

8-18
*0. A! it is estimated that thirty persons will be li"ing in this new chapter house# what would
be the 3(ull's annual cost sa"ings by selecting the less costly location# rather than the more
costly@
A. D0
#! D1#*00
C. D200
<. D1*0
=. D%*0

""#$%: "$
Difficulty: Medium
TLO: '

Essay Questions

*1. 4hat are total costs !or site A !or a 6uantity o! *#000 units per year@
D1*0#000

""#$%: "$
Difficulty: Medium
TLO: '

8-11
*2. 4hat are total costs !or site ; !or a 6uantity o! *#000 units per year@
D1+0#000

""#$%: "$
Difficulty: Medium
TLO: '

*%. 4hat are total costs !or site C !or a 6uantity o! *#000 units per year@
D18*#000

""#$%: "$
Difficulty: Medium
TLO: '

*). 0or what 6uantity would you be indi!!erent between selecting site A or site ;@
10#000 units per year

""#$%: "$
Difficulty: Medium
TLO: '

**. 0or what 6uantity would you be indi!!erent between selecting site ; or site C@
%0#000 units per year

""#$%: "$
Difficulty: Medium
TLO: '

8-20
*+. 0or what range o! output would you pre!er site A@
1-1#111

""#$%: "$
Difficulty: Medium
TLO: '

*/. 0or what range o! output would you pre!er site ;@
10#001 - 21#111

""#$%: "$
Difficulty: Medium
TLO: '

*8. 0or what range o! output would you pre!er site C@
%0#001 and abo"e

""#$%: "$
Difficulty: Medium
TLO: '

*1. 4hich site would you pre!er !or a 6uantity o! 20#000 units per year@
;

""#$%: "$
Difficulty: Medium
TLO: '

8-21
+0. 0or the pre!erred site !or 20#000 units per year# what would be your total costs@
D280#000

""#$%: "$
Difficulty: Medium
TLO: '

+1. 0or the pre!erred site !or 20#000 units per year# what would be your cost sa"ings compared
to each o! the other two sites@
D20#000 "s. A$ D10#000 "s. C

""#$%: "$
Difficulty: Medium
TLO: '


A manu!acturing !irm is considering two locations !or a plant to produce a new product. he
two locations ha"e !i,ed and "ariable costs as !ollowsB

8-22
+2. At what annual output would the company be indi!!erent between the two locations@
A. +0#000 units
#! 1*#000 units
C. 10#000 units
<. 20#000 units
=. )#000 units

""#$%: "$
Difficulty: Medium
TLO: '

+%. 4hat would the total annual costs be !or the Phoeni, location with an annual output o!
10#000 units@
A. D280#000
;. D1)0#000
C. D220#000
"! D%00#000
=. D1*+#000

""#$%: "$
Difficulty: Medium
TLO: '

+). 4hat would be the total annual costs at the point o! indi!!erence@
A. D%00#000
;. D2)0#000
C! D%80#000
<. D220#000
=. D/+0#000

""#$%: "$
Difficulty: Medium
TLO: '

8-2%
+*. A! annual demand is estimated to be 20#000 units# which location should the company
select@
A. Atlanta
#! Phoeni,
C. either Atlanta or Phoeni,
<. re7ect both Atlanta and Phoeni,
=. build at both locations

""#$%: "$
Difficulty: Medium
TLO: '

++. A! the annual demand will be 20#000 units# what would be the cost ad"antage o! the better
location@
A! D20#000
;. D)+0#000
C. D)80#000
<. D80#000
=. D+0#000

""#$%: "$
Difficulty: Medium
TLO: '

A location analysis has been narrowed down to three locations. he critical !actors# their
weights# and the ratings !or each location are shown belowB

8-2)
+/. 4hat is the composite score !or location A@
A. /+
#! /*
C. /8
<. /)
=. /+.%%

""#$%: "$
Difficulty: Medium
TLO: '

+8. 4hat is the composite score !or location ;@
A. /+
;. /*
C! /8
<. /)
=. /+.%%

""#$%: "$
Difficulty: Medium
TLO: '

+1. 4hat is the composite score !or location C@
A! /+
;. /*
C. /8
<. /)
=. /+.%%

""#$%: "$
Difficulty: Medium
TLO: '

8-2*
/0. A! the selection criteria is to be the greatest composite score# management should chooseB
A. location A
#! location ;
C. location C
<. either ; or C
=. to re7ect all locations

""#$%: "$
Difficulty: Medium
TLO: '

/1. A! the decisions rule is to select the location with the greatest composite score e,ceeding
80# management should chooseB
A. location A
;. location ;
C. location C
<. either ; or C
E! to re7ect all locations

""#$%: "$
Difficulty: Medium
TLO: '

A clothing manu!acturer produces clothing in !i"e locations in the F. 3. An a mo"e to "ertical
integration# the company is planning a new !abric production plant that will supply !abric to
all !i"e clothing plants. he clothing plants ha"e been located on a coordinate system as
!ollowsB

8-2+
/2. A! the amount o! !abric shipped to each plant is e6ual# what is the optimal location !or the
!abric plant@
A. *# *
#! +# )
C. )# +
<. +# 2
=. *# )

""#$%: "$
Difficulty: Medium
TLO: '

/%. 3hipments o! !abric to each plant "ary per wee( as !ollowsB plant A# 200 units$ plant ;#
)00 units$ plant C# %00 units$ plant <# %00 units$ and plant =# 200 units. 4hat is the optimal
location !or the !abric plant@
A. +.2# %.0
;. +.0# ).0
C. +.*# *.%
"! *.+# ).)
=. *.0# %.0

""#$%: "$
Difficulty: Medium
TLO: '

A hardware distributor has regional warehouses at the locations shown below. he company
wants to locate a new central distribution center to ser"e this warehouse networ(.

8-2/
/). A! wee(ly shipments to each warehouse will be appro,imately e6ual# what is the optimal
location !or the distribution center@
A! *# *
;. *# )
C. )# *
<. *# +
=. +# *

""#$%: "$
Difficulty: Medium
TLO: '

/*. 4ee(ly shipments to each warehouse will beB 4G1# 100$ 4G2# 1*0$ 4G%# 120$ 4G)#
1*0$ and 4G*# 120. 4hat is the optimal location o! the distribution center@
A. *.1# ).2
;. *.2# ).0
C! *.1# *.1
<. ).2# *.1
=. ).1# *.2

""#$%: "$
Difficulty: Medium
TLO: '

8-28

Location Planning Analysis

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Chapter 08 - Location Planning and Analysis

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