This document analyzes the most economical location for manufacturing a product expected to sell for Rs. 27,000 per unit at a volume of 2000 units per year. Location B has the lowest total cost of Rs. 8,000,000 based on its fixed cost of Rs. 7,000,000 and variable cost of Rs. 500 per unit. The document also calculates the range of volumes for which each location would be most economical, with Location C best for volumes below 400 units, Location A from 400-1000 units, and Location B for volumes over 1000 units.

1. WELCOME

2. PLANT LOCATION
Numerical problem

3. REASON FOR PLANT LOCATION
STUDY
1. Establishment of a new venture
2. Expansion of existing business.
3. Significant change in existing demand , supply
and marketing location
4. Significant change in the cost structure
5. Government policies

4. QUESTION
Potential locations A,B,C have the cost structures shown
below for manufacturing a product expected to sell
for Rs.27000/- per unit Find the most economical
location for an expected volume of 2000 units per
year.
Site Fixed
cost/year
Variable
cost/year
A 6,000,000 1500
B 7,000,000 500
C 5,000,000 4000

5. SOLUTION
First we calculate the total cost of each plant by
using following formula -:
Total cost = fixed cost + (variable cost/unit)(volume)
LOCATION TOTAL COST
A 6,000,000 + 1500*2000 = 9,000,000
B 7,000,000 + 500*2000 = 8,000,000
C 5.000.000 + 4000*2000 =13,000,000

6. From the above table . It is clear that the cost for the
location B is minimum.
(second part)
Range calculation
In this range calculation we can get what amount
of volume is suitable for each location.

7. Let Q be the volume at which we switch from
site C to site A –
TC of site C > TC of site A
5,000,000 + 4000 Q > 6,000,000 + 1500 Q
4000 Q – 1500 Q > 6,000,000 – 5,000,000
2500 Q > 1,000,000
Q > 1,000,000/2500
Q > 400 units

8. Let Q be the volume at which we switch from
site A to site B –
TC of site A > TC of site B
6,000,000 + 1500 Q > 7,000,000 + 500 Q
1500 Q – 500 Q > 1,000,000
Q > 1,000,000/1000
Q > 1000 units

9. RANGE
RANGE OF
VOLUME
BEST PLANT
0 < Q < 400 C
400 < Q < 1000 A
1000 < Q B