MGT434X – Operations Management Assignment 8.1 – Profits and Supply Points Answe
ID: 455900 • Letter: M
Question
MGT434X – Operations Management
Assignment 8.1 – Profits and Supply Points
Answer the following questions
The As-You-Like-It Hamburger Shop is considering adding a new location. The investment at each of the four potential sites is the same. The price they can charge for hamburgers is set by the competition in the area.
Given the information below, which site is expected to be the most profitable?
Factor
Site A
Site B
Site C
Site D
Fixed Cost
$10,000
$8,000
$6,000
$11,000
Variable Cost per Unit
$ 0.70
$ 0.70
$ 0.85
$ 0.65
Price per Unit
$ 1.30
$ 1.20
$ 1.25
$ 1.10
Forecast Volume (Units)
20,000
22,000
18,000
24,000
Given the retail location coordinates and the value of material movement in the following chart, find the best supply point location using the center-of-gravity method.
Retail Outlet
Location Coordinates X, Y
Material Movement
1
25, 05
1,500
2
17, 20
3,000
3
12, 12
1,000
4
06, 09
2,200
Factor
Site A
Site B
Site C
Site D
Fixed Cost
$10,000
$8,000
$6,000
$11,000
Variable Cost per Unit
$ 0.70
$ 0.70
$ 0.85
$ 0.65
Price per Unit
$ 1.30
$ 1.20
$ 1.25
$ 1.10
Forecast Volume (Units)
20,000
22,000
18,000
24,000
Explanation / Answer
The profit from a site can be calculated as
Price /unit x Forecast volumes - (Fixed cost + Variable cost x Forecast volumes)
The calculations for each of the site is shown below
From the above analysis, location B is most profitable
For Centre of Gravity method, the following formula is used to determine the x and 7=y coordinates
Substituting the given values in the equation we get
Cx = (25x1500 + 17x3000 + 12x1000 + 6x2200) / (1500+3000+1000+2200)
Cx =113700 / 7700 = 14.76
Cy = (5x1500 + 20x3000 + 12x1000 + 9x2200) / (1500+3000+1000+2200)
Cy = 99300 / 7700 = 12.89
The coordinates of the supply point are 14.76, 12.89
Factor Site A Site B Site C Site D Fixed Cost 10000 8000 6000 11000 Variable Cost per Unit 0.7 0.7 0.85 0.65 Price per Unit 1.3 1.2 1.25 1.1 Forecast Volume (Units) 20,000 22,000 18,000 24,000 Profit 2000 3000 1200 -200Related Questions
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