MBA Operations Management - Test Bank - Chapter 08

Operations Management, 12e (Heizer/Render/Munson)
Chapter 8  Location Strategies

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Section 1   The Strategic Importance of Location
1) FedEx chose Memphis, Tennessee, for its central location, or "hub," primarily because of the incentives offered by the city of Memphis and the state of Tennessee.
Answer:  FALSE
Diff: 2
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

2) FedEx chose Memphis, Tennessee, as its U.S. hub because:

1. A) the city is in the center of the United States, geographically.
2. B) the airport has relatively few hours of bad weather closures.
3. C) it needed a means to reach cities to which it did not have direct flights.
4. D) the firm believed that a hub system was superior to traditional city-to-city flight scheduling.
5. E) All of the above are true.

Answer:  E
Diff: 1
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

3) Which of the following statements regarding FedEx is TRUE?

1. A) Its hub in Memphis, Tennessee, was selected because of its low cost.
2. B) Memphis, Tennessee, is the only hub in the company's global flight network.
3. C) FedEx believes the hub system helps reduce mishandling and delays due to better controls.
4. D) FedEx uses a hub system in the United States, but a city-to-city network in other countries.
5. E) Memphis is FedEx's only hub airport in the United States.

Answer:  C
Diff: 1
Key Term:  Global company profile

4) Industrial location analysis typically attempts to:

1. A) minimize costs.
2. B) maximize sales.
3. C) focus more on human resources.
4. D) avoid countries with strict environmental regulations.
5. E) ignore exchange rates and currency risks.

Answer:  A
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

5) A location decision for an appliance manufacturer would tend to have what type of focus?

1. A) cost focus
2. B) focus on finding very highly skilled technicians
3. C) revenue focus
4. D) environmental focus
5. E) education focus

Answer:  A
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

6) A location decision for a traditional department store (e.g., Macy's) would tend to have what type of focus?

1. A) cost focus
2. B) labor focus
3. C) revenue focus
4. D) environmental focus
5. E) education focus

Answer:  C
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

7) Location decisions are often being based on which of the following?

1. A) ports and rivers
2. B) rail hubs
3. C) interstate highways
4. D) airports
5. E) all of the above

Answer:  E
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

8) FedEx schedules its aircraft using a(n) ________ system, which it credits with reducing package mishandling and delay in transit.
Answer:  central hub
Diff: 2
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
9) Why does FedEx use a central hub airline network, rather than a "point-to-point" network? Describe FedEx's approach to choosing its superhub.
Answer:  The hub system is more centralized, and allows for greater control; greater control reduces package mishandling and transit delays. Also, the hub permits service to a far greater number of points with fewer aircraft than a point-to-point network would. Their U.S. hub in Memphis reflects a need to be geographically centralized, and in a location where schedules can more reliably be kept because weather delays are minimized.
Diff: 2
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

10) State the fundamental objective of a firm's location strategy. How is this basic objective carried out by industrial or goods-producing firms; how does that differ for service firms?
Answer:  The fundamental objective is to maximize the benefit of location to the firm. For industrial location decisions, the focus is frequently on minimizing cost, because cost often varies dramatically from one location to another. Service location decisions often focus on maximizing revenues.
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

Section 2   Factors That Affect Location Decisions

1) Lists have been developed that rank countries on issues such as "competitiveness" and "corruption."
Answer:  TRUE
Diff: 1
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

2) The ratio of labor cost per day to productivity, in units per day, is the labor cost per unit.
Answer:  TRUE
Diff: 2
Objective:  LO 8.2 Compute labor productivity
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

3) For a location decision, labor productivity may be important in isolation, but low wage rates are a more important criterion.
Answer:  FALSE
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
4) Unfavorable exchange rates can offset other savings in a location decision.
Answer:  TRUE
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

5) An example of an intangible cost, as it relates to location decisions, is the quality of education.
Answer:  TRUE
Diff: 2
Key Term:  Intangible costs
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

6) In location decisions, intangible costs are easier to measure than tangible costs.
Answer:  FALSE
Diff: 2
Key Term:  Intangible costs
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


7) Location decisions are based on many things, including costs, revenues, incentives, attitudes, and intangibles, but not on ethical considerations.
Answer:  FALSE
Diff: 1
AACSB:  Ethical understanding and reasoning
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

8) Manufacturers may want to locate close to their customers if the transportation of finished goods is expensive or difficult.
Answer:  TRUE
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

9) One reason for a firm locating near its competitors is the presence of a major resource it needs.
Answer:  TRUE
Diff: 2
Key Term:  Clustering
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
10) Why is Northern Mexico used as a cluster for electronics firms?

1. A) high traffic flows
2. B) venture capitalists located nearby
3. C) natural resources of land and climate
4. D) NAFTA
5. E) high per capita GDP

Answer:  D
Diff: 2
Key Term:  Clustering
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

11) Among the following choices, an operations manager might best evaluate political risk of a country by looking at which type of country ranking?

1. A) based on competitiveness
2. B) based on cost of doing business
3. C) based on corruption
4. D) based on magnitude of government social programs
5. E) based on average duration between presidential/prime minister elections

Answer:  C
Diff: 1
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


12) ________ and currency risks are to key country success factors as land costs and ________ are to key region success factors.

1. A) Cultural issues; zoning restrictions
2. B) Exchange rates; environmental impact
3. C) Labor cost; proximity to customers
4. D) Land costs; air and rail systems
5. E) All of the above are accurate relationships.

Answer:  C
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

13) Which of the following workers is the most productive?

1. A) $50 wages, 10 parts produced
2. B) $10 wages, 1 part produced
3. C) $30 wages, 5 parts produced
4. D) $100 wages, 21 parts produced
5. E) $500 wages, 100 parts produced

Answer:  D
Diff: 2
AACSB:  Analytical thinking
Objective:  LO 8.2 Compute labor productivity
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
14) A employee produces 15 parts during a shift in which he made $90. What is the labor content of the product?

1. A) $90
2. B) $5
3. C) $6
4. D) $0.167
5. E) $1,350

Answer:  C
Diff: 2
AACSB:  Analytical thinking
Objective:  LO 8.2 Compute labor productivity
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

15) The reason fast food restaurants often are found in close proximity to each other is:

1. A) they enjoy competition.
2. B) location clustering near high traffic flows.
3. C) low cost.
4. D) availability of skilled labor.
5. E) all of the above.

Answer:  B
Diff: 2
Key Term:  Clustering
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


16) Currency risk is based on what assumption?

1. A) Firms that do not continuously innovate will lose market share.
2. B) Values of foreign currencies continually rise and fall in most countries.
3. C) Changing product lines by reacting to every current trend may alienate the customer base.
4. D) The value of one dollar today is greater than the value of one dollar to be received one year from now.
5. E) The U.S. stock market fluctuates daily.

Answer:  B
Diff: 1
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
17) Governmental attitudes toward issues such as private property, intellectual property, zoning, pollution, and employment stability may change over time. What is the term associated with this phenomenon?

1. A) bureaucratic risk
2. B) political risk
3. C) legislative risk
4. D) judicial risk
5. E) democratic risk

Answer:  B
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

18) Globalization of the location decision is the result of all EXCEPT which of the following?

1. A) market economics
2. B) higher quality of labor overseas
3. C) ease of capital flow between countries
4. D) high differences in labor costs
5. E) more rapid, reliable travel and shipping

Answer:  B
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

19) In location planning, environmental regulations, cost and availability of utilities, and taxes are:

1. A) global factors.
2. B) country factors.
3. C) regional/community factors.
4. D) site-related factors.
5. E) none of the above.

Answer:  C
Diff: 3
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


20) Which of the following is usually NOT one of the top considerations in choosing a country for a facility location?

1. A) availability of labor and labor productivity
2. B) exchange rates
3. C) attitude of governmental units
4. D) zoning regulations
5. E) location of markets

Answer:  D
Diff: 3
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
21) When making a location decision at the country level, which of these would be considered?

1. A) corporate desires
2. B) land/construction costs
3. C) air, rail, highway, waterway systems
4. D) zoning restrictions
5. E) location of markets

Answer:  E
Diff: 3
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

22) Which of these factors would be considered when making a location decision at the region/community level?

1. A) government rules, attitudes, stability, incentives
2. B) cultural and economic issues
3. C) zoning restrictions
4. D) environmental impact issues
5. E) proximity to raw materials and customers

Answer:  E
Diff: 3
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

23) When making a location decision at the region/community level, which of these would be considered?

1. A) government rules, attitudes, stability, incentives
2. B) cultural and economic issues
3. C) cost and availability of utilities
4. D) zoning restrictions
5. E) air, rail, highway, waterway systems

Answer:  C
Diff: 3
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


24) Which of these factors would be considered when making a location decision at the site level?

1. A) government rules, attitudes, stability, incentives
2. B) cultural and economic issues
3. C) zoning regulations
4. D) cost and availability of utilities
5. E) proximity to raw materials and customers

Answer:  C
Diff: 3
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
25) Tangible costs include which of the following?

1. A) climatic conditions
2. B) availability of public transportation
3. C) taxes
4. D) quality and attitude of prospective employees
5. E) zoning regulations

Answer:  C
Diff: 2
Key Term:  Tangible costs
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

26) Intangible costs include which of the following?

1. A) quality of prospective employees
2. B) quality of education
3. C) availability of public transportation
4. D) all of the above
5. E) none of the above

Answer:  D
Diff: 2
Key Term:  Intangible costs
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

27) Which of the following statements regarding "proximity" in the location decision is FALSE?

1. A) Service organizations find that proximity to market is the most critical primary location factor.
2. B) Manufacturers want to be near customers when their product is bulky, heavy, or fragile.
3. C) Perishability of raw materials is a good reason for manufacturers to locate near the supplier, not the customer.
4. D) Reduction in bulk is a good reason for a manufacturer to locate near the supplier.
5. E) Clustering among fast food chains occurs because they need to be near their labor supply.

Answer:  E
Diff: 2
Key Term:  Clustering
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

28) Which of the following is the best example of the proximity rule that, for service firms, proximity to market is the most important location factor?

1. A) Soft drinks are bottled in many local plants, where carbonated water is added to proprietary syrups that may have been shipped long distances.
2. B) Few people will travel out of state for a routine haircut.
3. C) Patients will travel very long distances to have their hernia surgeries performed at Shouldice Hospital.
4. D) Furniture makers choose to locate near the source of good hardwoods, even though it means locating near other furniture manufacturers.
5. E) Metal refiners (smelters) locate near mines to accomplish significant weight reduction near the metal's source.

Answer:  B
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

29) ________ costs are readily identifiable and can be measured with precision.
Answer:  Tangible
Diff: 2
Key Term:  Tangible costs
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

30) Political risk, cultural issues, and exchange rates are among those ________ that affect which country will be selected for a location decision.
Answer:  key success factors
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

31) Labor cost per unit is also referred to as ________.
Answer:  labor content
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

32) ________ occurs when competing companies locate near each other because of a critical mass of information, talent, venture capital, or natural resources.
Answer:  Clustering
Diff: 2
Key Term:  Clustering
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
33) Identify five factors that have fostered globalization.
Answer:  Globalization has taken place because of the development of: (1) market economics; (2) better international communications; (3) more rapid, reliable travel and shipping; (4) ease of capital flow between countries; and (5) high differences in labor costs.
Diff: 3
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

34) Identify five factors that affect location decisions at the site level.
Answer:  Factors that affect location decisions at the site level include site size and cost; air, rail, highway, waterway systems; zoning restrictions; nearness of services/supplies needed; and environmental impact issues.
Diff: 3
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

35) What is the role of labor productivity in location decisions?
Answer:  Labor productivity is the number of units output per hour of labor input. For location decisions, this is more often displayed in the form of "labor content," which is the dollar labor cost per unit. Labor content provides a useful comparison in cases where wage rates and productivities vary greatly from country to country. In short, low productivity can negate low wages.
Diff: 2
Objective:  LO 8.2 Compute labor productivity
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

36) What is the impact of exchange rates on location decisions?
Answer:  Exchange rates fluctuate, and they can negate savings from low wage rates.
Diff: 2
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

37) Why is "quality of life" an element of intangible costs associated with location decisions? Provide an example as part of your discussion.
Answer:  Quality of life affects location decisions in at least one indirect way. Consider a firm that has narrowed its location to two cities. One city has an abundance of educational and recreational facilities, good hospitals and parks. The other has very little of these elements. If you were a prospective employee, in which city would you rather live? Low quality of life can drive up labor costs, and it might also have an impact on training costs and health care costs.
Diff: 2
Key Term:  Intangible costs
AACSB:  Reflective thinking
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
38) "Proximity" or closeness implies that a firm should locate "close" to something. What are the three kinds of proximity described in the text? What are the basic conditions under which each is appropriate? What kinds of firms are likely to use each of these?
Answer:  The three are proximity to markets, proximity to suppliers, and proximity to competitors. Proximity to markets is appropriate when customers will not travel far to get the good or service, or when delivering the product to the customer is costly or difficult. Many services must be close to their markets, as must home construction. Proximity to suppliers is appropriate when raw materials are perishable, or when supplies are costly or bulky to transport. Seafood processors need to be near the docks, and smelters need to be near the mines. Proximity to competitors reflects a kind of synergy–retailers find that volume is higher when there are more competitors nearby, because this clustering brings higher traffic counts.
Diff: 3
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

39) What is it called when competing companies locate next to each other? Why do they do this?
Answer:  It is called clustering. In many cases, this occurs because of a critical mass of information, talent, venture capital, or natural resources. Alternately, clustering occurs because several firms close together create a larger total market than the same firms separated.
Diff: 2
Key Term:  Clustering
Objective:  LO 8.1 Identify and explain seven major factors that affect location decisions
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

Section 3   Methods of Evaluating Location Alternatives

1) The graphic approach to locational cost-volume analysis displays the range of volume over which each location is preferable.
Answer:  TRUE
Diff: 2
Key Term:  Locational cost-volume analysis
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

2) The factor-rating method can consider both tangible and intangible costs.
Answer:  TRUE
Diff: 2
Key Term:  Factor-rating method
AACSB:  Reflective thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
3) The center-of-gravity method finds the location of a centralized facility, such as a distribution center, that will maximize the organization's revenue.
Answer:  FALSE
Diff: 2
Key Term:  Center-of-gravity method
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

4) The transportation model calculates an optimal shipping system between a central facility and several outlying customers.
Answer:  FALSE
Diff: 2
Key Term:  Transportation model
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


5) Which of the following statements regarding the center-of-gravity method is FALSE?

1. A) It is designed to minimize the maximum possible travel distance to any of the locations.
2. B) The optimal x- and y-coordinates are calculated separately.
3. C) The optimal solution is unconstrained, so it could suggest a location in the middle of a body of water.
4. D) The weights used are the quantity of goods moved to or from each location.
5. E) The origin of the coordinate system and the scale used are arbitrary, just as long as the relative distances are correctly represented.

Answer:  A
Diff: 2
Key Term:  Center-of-gravity method
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

6) Community attitudes, zoning restrictions, and quality of labor force are likely to be considered in which of the following location decision methods?

1. A) transportation method
2. B) locational cost-volume analysis
3. C) center-of-gravity method
4. D) simulation
5. E) factor-rating method

Answer:  E
Diff: 2
Key Term:  Factor-rating method
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
7) Which of the following methods best considers intangible costs related to a location decision?

1. A) crossover methods
2. B) locational cost-volume analysis
3. C) factor-rating method
4. D) the transportation method
5. E) center-of-gravity method

Answer:  C
Diff: 2
Key Term:  Factor-rating method
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

8) Evaluating location alternatives by comparing their composite (weighted-average) scores involves which of the following?

1. A) factor-rating analysis
2. B) cost-volume analysis
3. C) transportation model analysis
4. D) linear regression analysis
5. E) crossover analysis

Answer:  A
Diff: 2
Key Term:  Factor-rating method
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

9) A clothing chain is considering two different locations for a new retail outlet. They have identified the four factors listed in the following table as the basis for evaluation, and have assigned weights as shown. The manager has rated each location on each factor, on a 100-point basis, as shown under the respective columns for Barclay and Chester.

Factor	Factor Description	Weight	Barclay	Chester
1	Average community income	.40	30	20
2	Community growth potential	.25	40	30
3	Availability of public transportation	.15	20	20
4	Labor cost	.20	10	30

What is the score for Chester?

10. A) 10.00
11. B) 24.50
12. C) 25.75
13. D) 27.00
14. E) 100.00

Answer:  B
Diff: 2
Key Term:  Factor-rating method
AACSB:  Analytical thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

10) Which of the following is an approach to location analysis that includes both qualitative and quantitative considerations?

1. A) locational cost-volume analysis
2. B) factor-rating method
3. C) transportation model
4. D) center-of-gravity method
5. E) make-or-buy analysis

Answer:  B
Diff: 2
Key Term:  Factor-rating method
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

11) On the crossover chart where the costs of two or more location alternatives have been plotted, the quantity at which two cost curves cross is the quantity where:

1. A) fixed costs are equal for two alternative locations.
2. B) variable costs are equal for two alternative locations.
3. C) total costs are equal for all alternative locations.
4. D) fixed costs equal variable costs for one location.
5. E) total costs are equal for two alternative locations.

Answer:  E
Diff: 2
Key Term:  Locational cost-volume analysis
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

12) A full-service restaurant is considering opening a new facility in a specific city. The table below shows its ratings of four factors at each of two potential sites.

Factor	Weight	Gary Mall	Belt Line
Affluence of local population	.20	30	30
Traffic flow	.40	50	20
Parking availability	.20	30	40
Growth potential	.20	10	30

The score for Gary Mall is ________ and the score for Belt Line is ________.

1. A) 120; 120
2. B) 22; 24
3. C) 18; 120
4. D) 34; 28
5. E) none of the above

Answer:  D
Diff: 2
Key Term:  Factor-rating method
AACSB:  Analytical thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
13) A firm is considering two location alternatives. At location A, fixed costs would be $4,000,000 per year, and variable costs $0.30 per unit. At alternative B, fixed costs would be $3,600,000 per year, with variable costs of $0.35 per unit. If annual demand is expected to be 10 million units, which plant offers the lowest total cost?

1. A) Plant A, because it is cheaper than Plant B for all volumes over 8,000,000 units.
2. B) Plant B, because it is cheaper than Plant A for all volumes over 8,000,000 units.
3. C) Plant A, because it is cheaper than Plant B for all volumes.
4. D) Plant B, because it has the lower variable cost per unit.
5. E) Neither Plant A nor Plant B, because the crossover point is at 10 million units.

Answer:  A
Diff: 2
Key Term:  Locational cost-volume analysis
AACSB:  Analytical thinking
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

14) The center-of-gravity method is used primarily to determine what type of locations?

1. A) service locations
2. B) manufacturing locations
3. C) distribution center locations
4. D) supplier locations
5. E) call center locations

Answer:  C
Diff: 2
Key Term:  Center-of-gravity method
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

15) A regional bookstore chain wants to build a distribution center that is centrally located for its eight retail outlets. It will most likely employ which of the following tools of analysis?

1. A) assembly line balancing
2. B) load-distance analysis
3. C) center-of-gravity method
4. D) linear programming
5. E) locational cost-volume analysis

Answer:  C
Diff: 2
Key Term:  Center-of-gravity method
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
16) East Texas Seasonings is preparing to build one processing center to serve its four sources of seasonings. The four source locations are at coordinates shown below. Also, the volume from each source is provided. What is the center of gravity?

	X-coordinate	Y-coordinate	Volume
Athens, Texas	30	30	150
Beaumont, Texas	20	10	350
Carthage, Texas	10	70	100
Denton, Texas	50	50	200

28. A) X = 28.125; Y = 31.25
29. B) X = 22000; Y = 24000
30. C) X = 27.5; Y = 40
31. D) center of gravity = 28
32. E) X = 25; Y = 40

Answer:  A
Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


17) A county wants to build one centrally-located processing facility to serve the county's four recycling drop-off locations. The four drop-offs have characteristics as given in the table below. What is the approximate center of gravity of these four locations?

Location	X-coordinate	Y-coordinate	Tonnage
Drop-off point A	1	8	10
Drop-off point B	6	7	35
Drop-off point C	6	2	25
Drop-off point D	4	7	50

4. A) (4.75, 6.04)
5. B) (17, 24)
6. C) (33.5, 135.4)
7. D) (6, 4.25)
8. E) (570, 725)

Answer:  A
Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
18) Production and transportation costs are always considered in which of the following location decision methods?

1. A) traffic counts
2. B) transportation model
3. C) purchasing power
4. D) proximity of markets
5. E) clustering

Answer:  B
Diff: 2
Key Term:  Transportation model
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

19) The transportation model, when applied to location analysis:

1. A) minimizes total fixed costs.
2. B) minimizes total production and transportation costs.
3. C) minimizes total transportation costs.
4. D) maximizes revenues.
5. E) minimizes the movement of goods.

Answer:  B
Diff: 2
Key Term:  Transportation model
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


20) The ________ method is popular because a wide variety of factors, from education to recreation to labor skills, can be objectively included.
Answer:  factor-rating
Diff: 2
Key Term:  Factor-rating method
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

21) The ________ is a mathematical technique used for finding the best location for a single distribution point that services several stores or areas.
Answer:  center-of-gravity method
Diff: 2
Key Term:  Center-of-gravity method
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

22) The ________ is used to determine the best pattern of shipments from several points of supply to several points of demand.
Answer:  transportation model
Diff: 2
Key Term:  Transportation model
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
23) Identify the four major quantitative methods for solving location problems.
Answer:  Factor-rating method, locational cost-volume analysis, center-of-gravity method, and transportation model.
Diff: 2
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

24) What are the advantages and disadvantages of the use of the factor-rating method?
Answer:  Factor rating can handle a mix of quantitative and qualitative variables; its calculations are simple and straightforward. Factor rating is subject to sensitivity to small swings in weights and scores, and is subject to subjectivity (different judges see different scores for same site).
Diff: 2
Key Term:  Factor-rating method
AACSB:  Reflective thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

25) What kinds of location decisions are appropriate for the use of locational cost-volume analysis? Write a brief paragraph explaining how the method can assist an operations manager in choosing among alternative sites in making a location decision.
Answer:  Crossover analysis is appropriate when the primary focus of a location decision is cost. For each alternative site, crossover analysis constructs a total cost curve composed of a fixed cost and a variable cost that depends upon volume. Where these cost curves intersect (or cross over) is the point at which two alternatives have the same cost. The graph of the cost curves of all alternative sites will display the range of volumes over which each site has the lowest cost of all alternatives.
Diff: 2
Key Term:  Locational cost-volume analysis
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

26) What kinds of location decisions are appropriate for the use of center-of-gravity analysis? What variable is being optimized in this analysis?
Answer:  The center-of-gravity technique is appropriate when the location decision must find a single centrally-located site to serve any number of outlying points; locating a distribution center to serve a dozen retail stores is an example. The analysis leads to a location that (approximately) minimizes the distribution cost (or total distance traveled) between all outlying points and the center or hub.
Diff: 2
Key Term:  Center-of-gravity method
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
27) A manufacturing company preparing to build a new plant is considering three potential locations for it. The fixed and variable costs for the three alternative locations are presented below.

1. Complete a numeric locational cost-volume analysis.
2. Indicate over what range each of the alternatives A, B, C is the low-cost choice.
3. Is any alternative never preferred? Explain.

Costs	A	B	C
Fixed ($)	2,500,000	2,000,000	3,500,000
Variable ($ per unit)	21	25	15

Answer:  B is cheapest up to 125,000 units; C is cheapest after 166,667 units. A is cheapest in between. The B-C crossover is not relevant. Thus each alternative has an attractive range.

Break-even points	Units	Dollars
Option A vs. Option B	125,000	5,125,000
Option A vs. Option C	166,667	6,000,000
Option B vs. Option C	150,000	5,750,000

Diff: 2
Key Term:  Locational cost-volume analysis
AACSB:  Analytical thinking
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

28) A farmers' cooperative association plans to build a new sugar mill in Southwestern Louisiana. The primary objective of the mill is to provide the farmers with a place to take their crop for processing that will reduce their transportation costs. The members of the co-op believe that the center-of-gravity method is appropriate for this objective. While there are over 200 sugar cane farms in the region, they are tightly clustered around six villages. Using the data below, use the center-of-gravity method to calculate the coordinates of the best location for this mill. All mileage references use the city of Lake Charles as (0,0).

Village	Miles East of Lake Charles	Miles North of Lake Charles	Sugar Cane tonnage
Arceneaux	90	10	240,000
Boudreaux	140	60	320,000
Cancienne	20	70	450,000
Darbonne	50	20	120,000
Evangeline	100	80	60,000
Fontenot	10	120	140,000

Answer:  The center of gravity, weighted by the tonnage at each village cluster, is about 66.8 miles east of Lake Charles and 58.0 miles north of Lake Charles.

Sugar Mill Solution
	Weighted # trips	x-coord	y-coord	X multiplied	Y multiplied
A	240.	90.	10.	21,600.	2,400.
B	320.	140.	60.	44,800.	19,200.
C	450.	20.	70.	9,000.	31,500.
D	120.	50.	20.	6,000.	2,400.
E	60.	100.	80.	6,000.	4,800.
F	140.	10.	120.	1,400.	16,800.
Total	1330.	410.	360.	88,800.	77,100.
Average		68.333	60.
Weighted Average				66.7669	57,9699
Median	665.			50.	60.

Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

29) A clothing chain is considering two different locations for a new retail outlet. The organization has identified the four factors listed in the following table as the basis for evaluation, and it has assigned weights as shown. The manager has rated each location on each factor, on a 100-point basis (higher scores are better), as shown under the respective columns for Barclay and Chester.

1. Calculate the composite score for each alternative location.
2. Which site should be chosen?
3. Are you concerned about the sensitivity and subjectivity of this solution? Comment.

Factor	Factor Description	Weight	Barclay	Chester
1	Average community income	.40	75	70
2	Community growth potential	.25	60	80
3	Availability of public transportation	.15	45	90
4	Labor cost	.20	80	60

Answer:  The higher rated site is Chester, 74.5 to 67.75. There is a margin of nearly seven points, which should overcome most levels of subjectivity. The site factor scores are quite different, so that a small swing in weights could produce swings in scores of a few points, but probably not the seven necessary to reverse the findings.

	Weight	Barclay	Chester
Factor 1	0.40	75	70
Factor 2	0.25	60	80
Factor 3	0.15	45	90
Factor 4	0.20	80	65
Total	1.00
Weighted sum		67.75	74.5
Weighted average		67.75	74.5

Diff: 2
Key Term:  Factor-rating method
AACSB:  Analytical thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

30) A manufacturing company is considering two alternative locations for a new facility. The fixed and variable costs for the two locations are found in the table below. For which volume of business would the two locations be equally attractive? If the company plans on producing 50,000 units, which location would be more attractive?

	Glen Rose	Mesquite
Fixed Costs	$1,000,000	$1,500,000
Variable Costs ($ per unit)	25	23

Answer:  Crossover is at 250,000 units. Below the crossover, Glen Rose must be cheaper as it has the lower fixed cost. Thus, for an estimated unit volume of 50,000, Glen Rose should be chosen.

Break-even points	Units	Dollars
Option 1 vs. Option 2	250,000	7,250,000
Volume analysis at 50,000 units
	Option 1	Option 2
total cost	$2,250,000.00	$2,650,000.00

Diff: 2
Key Term:  Locational cost-volume analysis
AACSB:  Analytical thinking
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

31) East Texas Seasonings is preparing to build one processing center to serve its four sources of seasonings. The four source locations are at coordinates shown below. Also, the volume from each source is provided.

1. Calculate the volume-weighted center of gravity.
2. Calculate the simple center of gravity (all cities weighted equally).
3. Explain why the two calculations differ.

	X-coordinate	Y-coordinate	Volume
Athens, Texas	30	40	100
Beaumont, Texas	20	15	400
Carthage, Texas	55	60	150
Denton, Texas	20	70	250

Answer:  The weighted center of gravity is located at X = 24,250 / 900 = 26.9, Y = 36,500 / 900 = 40.6. The simple center of gravity is located at X = 125 / 4 = 31.25. Y = 185 / 4 = 46.25. The simple center is more to the east and north than the weighted center of gravity. A partial explanation is that the heaviest tonnage is from Beaumont, which is far to the west and south. Its influence pulls the weighted center toward the west and south.

East Texas Seasonings Solutions
	Weighted # trips	x-coord	y-coord	X multiplied	Y multiplied
A	100.	30.	40.	3,000.	4,000.
B	400.	20.	15.	8,000.	6,000.
C	150.	55.	60.	8,250.	9,000.
D	250.	20.	70.	5,000.	17,500.
Total	900.	125.	185.	24,250.	36,500.
Average		31.25	46.25
Weighted Average				26.9444	40,5556
Median	450.			20.	40.

Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

32) Location A would result in annual fixed costs of $300,000 and variable costs of $55 per unit. Annual fixed costs at Location B are $600,000 with variable costs of $32 per unit. Sales volume is estimated to be 30,000 units per year. Which location has the lower cost at this volume? How large is its cost advantage? At what volume are the two facilities equal in cost?
Answer:  At 30,000 units, Location A has total costs of $1,950,000, while Location B has total costs of $1,560,000. Location B is cheaper by $390,000. The crossover occurs where 600,000 + 32X = 300,000 + 55X, or at X = 300,000 / 23 = 13,043 units
Diff: 2
Key Term:  Locational cost-volume analysis
AACSB:  Analytical thinking
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

33) Using the factor ratings shown below, determine which location alternative should be chosen on the basis of maximum composite score.

		Location
Factor	Weight	A	B	C
Easy access	0.15	86	72	90
Parking facilities	0.20	72	77	91
Display area	0.18	86	90	90
Shopper (walking) traffic	0.21	94	86	80
Neighborhood wealth	0.16	99	89	81
Neighborhood safety	0.10	96	85	75

Answer:  A is best (87.96), followed by C (85.16). B is somewhat further behind (83.20).
Diff: 2
Key Term:  Factor-rating method
AACSB:  Analytical thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

34) A manager has received an analysis of several cities being considered for a new order fulfillment center (warehouse) for Shop at Home Network. The scores (scale is 10 points = best) are contained in the table below.

1. If the manager weights the factors equally, how would the locations be ranked?
2. If transportation costs and operating costs are given weights that are double the weights of the others, should the locations be ranked differently?

	Location
Factor	W	X	Y	Z
Business services	7	9	5	4
Community services	5	7	6	7
Real estate cost	7	3	8	6
Construction costs	8	6	6	5
Operating costs	5	4	7	6
Business taxes	6	9	6	4
Transportation costs	8	6	7	8

Answer:  The locations are ranked W, Y, X, Z with equal weights; but W and Y tie for highest, and Z and X tie for lowest as revised.

Factor	Weight	W	X	Y	Z
Business services	1	7	9	5	4
Community services	1	5	7	6	7
Real estate cost	1	7	3	8	6
Construction costs	1	8	6	6	5
Operating costs	1	5	4	7	6
Business taxes	1	6	9	6	4
Transportation costs	1	8	6	7	8
Total	7	46	44	45	40
Weighted average		6.579	6.286	6.429	5.714

	Weight	W	X	Y	Z
Business services	1	7	9	5	4
Community services	1	5	7	6	7
Real estate cost	1	7	3	8	6
Construction costs	1	8	6	6	5
Operating costs	2	5	4	7	6
Business taxes	1	6	9	6	4
Transportation costs	2	8	6	7	8
Total	9
Weighted sum		59	54	59	54
Weighted average		6.56	6	6.56	6

Diff: 3
Key Term:  Factor-rating method
AACSB:  Analytical thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

35) A telecommunications firm is planning to lay fiber optic cable from several community college distance learning sites to a central studio, in such a way that the miles of cable are minimized. Some locations require more than one set of cables (these are the loads). Where should the studio be located to accomplish the objective?

College	Map Coordinate (x, y)	Load
A	(2,10)	3
B	(6,8)	2
C	(4,9)	4
D	(9,5)	1
E	(8,1)	3
F	(3,2)	2
G	(2,6)	1

Answer:  This is a center-of-gravity problem, even though it is not about shipping tangible items. The center of gravity is at coordinates X = 4.69, Y = 6.25

	Weight	X coord	Y coord
Location 1	3	2	10
Location 2	2	6	8
Location 3	4	4	9
Location 4	1	9	5
Location 5	3	8	1
Location 6	2	3	2
Location 7	1	2	6
Sum	16	34	41
Average		4.857	5.857
Weighted Average		4.6875	6.25

Diff: 3
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

36) The owner of a millwork shop is considering three alternative locations for a new plant for building embossed-and-clad steel exterior doors for residences. Fixed and variable costs follow. Since the plant ships nationwide, revenue is assumed the same regardless of plant location. Identify the range over which each location is best.

	Location
Costs	A	B	C
Fixed	$700,000	$1,000,000	$1,1000,000
Variable	$28	$18	$20

Answer:  A is cheapest from 0 to about 30,000 units. B is cheapest thereafter. C can never be preferred.

Break-even points	Units	Dollars
Location A vs. Location B	30,000	$1,540,000
Location A vs. Location C	50,000	$2,100,000
Location B vs. Location C	-50,000	$100,000

Diff: 2
Key Term:  Locational cost-volume analysis
AACSB:  Analytical thinking
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

37) A manufacturing firm is considering three potential locations for a new parts manufacturing facility. A consulting firm has assessed three sites based on the four factors supplied by management as critical to the location's success. Given the management-supplied factor weights and the consultant team scores, which location should be selected? Scores are based on 50 = best.

		Location
Factor	Weight	A	B	C
Labor Climate	10	35	45	20
Taxes	30	30	40	40
Utilities	20	25	20	45
Wages	40	10	25	25

Answer:  C is clearly better than either A or B. This problem illustrates the importance of having good scores on important factors. B has scores that sum to the same amount as those of C, but they are in the wrong places.

Factor	Weight	A	B	C
Labor Climate	10	35	45	20
Taxes	30	30	40	40
Utilities	20	25	20	45
Wages	40	10	25	25
Total	100
Weighted sum		2150	3050	3300
Weighted average		21.5	30.5	33.0

Diff: 2
Key Term:  Factor-rating method
AACSB:  Analytical thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

38) Environmental Glass Products, Inc. wants to build a new centralized facility to receive household, commercial, and industrial glass for recycling. This center will be supplied by trucks coming from four "collection points," where recyclable glass is dropped off by individuals and businesses. The volume and the map coordinates for the four collection centers are shown below. Where should the collection center be located?

Collection point	Load	(X,Y) Coordinates
A	9,000	(4,8)
B	4,000	(7,2)
C	2,000	(4,1)
D	5,000	(7,3)

Answer:  The center should be built near coordinates (5.35, 4.85).

Collection Point	Weight	X coord	Y coord
A	9,000	4	8
B	4,000	7	2
C	2,000	4	1
D	5,000	7	3
Sum	20,000	22	14
Average		5.5	3.5
Weighted Average		5.35	4.85

Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

39) A manufacturer of stamped metal auto parts has four parts factories in one city at the location coordinates shown below. Each coordinate unit represents a city block (roughly 100 meters). The yearly demand at each factory is also given.

Factories	Demand	X-Coord.	Y-Coord.
Rayburn Industrial Park	19,000	20	130
Port of Zavalla	3,000	60	40
Henderson Mfg. Center	5,000	70	100
Wax Mills Site	6,000	90	30

Management has decided to build a new sheet metal mill, to supply these factories, at a location central to these plants. What should be the map coordinates of the new plant?
Answer:  The mill should be located near (44, 99).

Sheet Metal Mill Solution
	Weighted # trips	x-coord	y-coord	X multiplied	Y multiplied
Rayburn	19.	20.	130.	380.	2,470.
Zavalla	3.	60.	40.	180.	120.
Henderson	5.	70.	100.	350.	500.
Wax MIlls	6.	90.	30.	540.	180.
Total	33.	240.	300.	1,450.	3,270.
Average		60.	75.
Weighted Average				43.9394.	99.0909.

Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
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.

1. Write out the equation for total cost for each site.
2. At what volume of output would the two locations have the same total cost?
3. For what range of output would Site 1 be superior?
4. For what range of output would Site 2 be superior?

Answer:  (a) The equation for the total cost at site 1 is TC = 500,000 + 25X, where X is volume. The equation for total cost at Site 2 is TC = 800,000 + 22X. (b) Set these two equations equal and solve for X. 500,000 + 25X = 800,000 + 22X leads to 300,000 = 3X, then to X = 100,000. (c) Site 1 is preferred for volumes up to 100,000 units, and (d) site 2 is preferred above 100,000 units.
Diff: 2
Key Term:  Locational cost-volume analysis
AACSB:  Analytical thinking
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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

Answer:  Location B is the preferred 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
Total	100
Weighted sum		4725	6600	6300
Weighted average		47.25	66	63

Diff: 2
Key Term:  Factor-rating method
AACSB:  Analytical thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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

Answer:  The depot should be located near X = 69, Y = 65.

Bases	Weight	X coord	Y coord	X mult.	Y mult.
Fort Able	30,000	40	110	1,200,000	3,300,000
Base Baker	60,000	70	50	4,200,000	3,000,000
Camp Charlie	35,000	90	20	3,150,000	700,000
Camp Delta	75,000	70	80	5,250,000	6,000,000
Sum	200,000	270	260	13,800,000	13,000,000
Weighted Average				69	65

Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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

1. What is the center of gravity?
2. 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 = ).

Answer:  a. The supply point should be at (33.75, 37.50).

	Weight	X coord	Y coord
Project A	1	50	10
Project B	1	15	60
Project C	1	40	60
Project D	1	30	20
Sum	4	135	150
Average		33.75	37.5
Weighted Average		33.75	37.5

b.

	Distance to COG
Project A	31.94
Project B	29.29
Project C	23.35
Project D	17.90

31.94(2) + 29.29(2) + 23.35(2) + 17.9(2) = 204.96 total miles traveled
Diff: 3
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


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)?
Answer:  (15.65, 0.87), where 15.65 = [20(14) + 30(12) + 4(20)]/(14 + 12 + 20), and 0.87 = [10(14) - 15(12) + 4(20)]/(14 + 12 + 20).
Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
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

Answer:  The total number of students is (2500 + 1000 + 10,000 + 4500 + 7500) = 25,500
X = [5(2500) + 0(1000) + 0(10,000) + 5(4500) + 2(7500)]/25,500 = 1.96
Y = [5(2500) + 5(1000) + 0(10,000) + 0(4500) + 1(7500)]/25,500 = .98
Rounding these gives (X,Y) of (2,1) which is closest to school E.
Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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

Answer:  Applying the factor rating method gives the following results:

Site	W(1)	W(2)
A	65	16.5
B	60	15.5
C	75	19.5
D	95	19

Thus the district should select site D under W(1) and site C under W(2).
Diff: 2
Key Term:  Factor-rating method
AACSB:  Analytical thinking
Objective:  LO 8.3 Apply the factor-rating method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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	50,000	2
B	100,000	1
C	60,000	1.4

Answer:  To solve for the crossover points, students should set the total cost functions equal for the various options. This gives the following equations
50,000 + 2x = 100,000 + x, x = 50,000 units
50,000 + 2x = 60,000 + 1.4x, x = 16,667 units
100,000 + x = 60,000 + 1.4x, x = 100,000 units
To check which function is the lowest cost for a given range, students should test each function for its total cost. For example
A(0) = 50000 + 2(0) = 50,000
B(0) = 100000 + 1(0) = 100,000
C(0) = 60000 + 1.4(0) = 60,000
Therefore for the range 0 to 16,667 option A is cheapest.
A(20000) = 90000
B(20000) = 120000
C(20000) = 88000
Therefore for the range 16,667 to 50,000 option C is cheapest.
A(60,000) = 170,000
B(60,000) = 160,000
C(60,000) = 144,000
Therefore for the range 50,000 to 100,000 option C is cheapest.
A(110,000) = 270,000
B(110,000) = 210,000
C(110,000) = 214,000
Therefore for the range 100,000 or more option B is cheapest.

Combining these ranges shows that for production of under 16,667 units A is cheapest, for between 16,667 and 100,000 C is cheapest, and for 100,000 and above B is cheapest.
Diff: 2
Key Term:  Locational cost-volume analysis
AACSB:  Analytical thinking
Objective:  LO 8.4 Complete a locational cost-volume analysis graphically and mathematically
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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?
Answer:  Since each store has the same demand, the x and y coordinates can simply be averaged and the DC will be located in the same spot for each case.
X = (112 + 110 + 40 + 10)/4 = 68
Y = (108 + 50 + 85 + 25) = 67
Thus the DC should be located at (68,67) for both cases.
Diff: 2
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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?
Answer:  Since each site has the same demand the coordinates can simply be averaged. Converting the center of town to (0,0) will mean that coordinates that are labeled South become -y and those labeled West become -x, while North becomes +y and East +x. Thus the location is found to be:
X = (-3 + 2 + 5 – 3 + 0 + 5)/6 = 1
Y = (-5 + 3 – 1 + 2 + 0 + 10)/6 = 1.5
Converting back into direction yields 1 mile East and 1.5 miles North of the center of town should be the location for the hub.
Diff: 3
Key Term:  Center-of-gravity method
AACSB:  Analytical thinking
Objective:  LO 8.5 Use the center-of-gravity method
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

Section 4   Service Location Strategy

1) Service firms choose locations based, in part, on the revenue potential of a site.
Answer:  TRUE
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
2) The location decisions of goods-producing firms will generally pay more attention to parking, access, and traffic counts than will service location decisions.
Answer:  FALSE
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


3) Location decisions of goods-producing companies often assume that costs are relatively constant for a given area; therefore, the revenue function is critical.
Answer:  FALSE
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

4) Which of the following is NOT among the eight determinants of revenue and volume for a service firm?

1. A) quality of management
2. B) shipment cost of finished goods
3. C) purchasing power of the customer-drawing area
4. D) uniqueness of the firm's and the competitors' locations
5. E) competition in the area

Answer:  B
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

5) Which of the following is among the eight determinants of revenue and volume for a service firm?

1. A) uniqueness of the firm's and the competitors' locations
2. B) quality of the competition
3. C) quality of management
4. D) purchasing power of the customer-drawing area
5. E) all of the above

Answer:  E
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis

6) Traffic counts and purchasing power analysis of drawing area are techniques associated with:

1. A) locational cost-volume analysis.
2. B) a manufacturing location decision.
3. C) a retail or professional service location decision.
4. D) the factor-rating method.
5. E) the transportation model.

Answer:  C
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
7) La Quinta Inns has a competitive edge over its rivals because it:

1. A) uses regression analysis to determine which variables most influence profitability.
2. B) has better television advertisements.
3. C) picks larger locations than its rivals.
4. D) builds only along interstate highways.
5. E) consistently receives four-star ratings for its inns.

Answer:  A
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

8) Which of the following is NOT one of the predictive variables chosen by the profitability regression model used by La Quinta Inns?

1. A) the price of the inn
2. B) median income levels
3. C) the state population per inn
4. D) the location of nearby colleges
5. E) the number of inns in a region

Answer:  E
Diff: 3
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

9) Traffic counts and demographic analysis of drawing area are associated with:

1. A) the center-of-gravity method.
2. B) manufacturing location decisions.
3. C) service location decisions.
4. D) the transportation model.
5. E) locational cost-volume analysis.

Answer:  C
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

10) Location analysis techniques typically employed by service organizations include:

1. A) the factor rating method.
2. B) the center-of-gravity method.
3. C) purchasing power analysis of area.
4. D) traffic counts.
5. E) all of the above.

Answer:  E
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
11) Which of the following is most likely to affect the location decision of a service firm rather than a manufacturing firm?

1. A) energy and utility costs
2. B) attitude toward unions
3. C) parking and access
4. D) cost of shipping finished goods
5. E) labor costs

Answer:  C
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


12) Which of the following is a location analysis technique typically employed by a service organization?

1. A) purchasing power analysis
2. B) linear programming
3. C) queuing theory
4. D) transportation method
5. E) locational cost-volume analysis

Answer:  A
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

13) A jewelry store is more likely than a jewelry manufacturer to consider ________ in making a location decision.

1. A) transportation costs
2. B) cost of raw materials
3. C) appearance/image of the location
4. D) quality of life
5. E) taxes

Answer:  C
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

14) Which of the following is a location analysis technique typically employed by a manufacturing organization?

1. A) transportation method
2. B) queuing theory
3. C) correlation analysis and traffic counts
4. D) simulation
5. E) demographic analysis

Answer:  A
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
15) Which of the following assumptions is NOT associated with strategies for goods-producing location decisions?

1. A) Most major costs can be identified explicitly for each site.
2. B) Focus on identifiable costs.
3. C) High customer-contact issues are critical.
4. D) Intangible costs can be evaluated.
5. E) Location is a major determinant of cost.

Answer:  C
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


16) Which of the following is most likely to affect the location strategy of a manufacturing firm?

1. A) appearance/image of the area
2. B) utility costs
3. C) purchasing power of drawing area
4. D) competition in the area
5. E) parking availability

Answer:  B
Diff: 2
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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 ________.
Answer:  revenue or volume of business
Diff: 1
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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?
Answer:  The assumptions for goods-producing locations are: (1) location is a major determinant of cost; (2) most major costs can be identified explicitly for each site; (3) low customer contact allows focus on the identifiable costs; and (4) intangible cost can be objectively evaluated. On the basis of these assumptions, the location strategy for goods-producing firms is usually aimed at minimizing cost.
Diff: 3
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
19) How do service facility location decisions differ from industrial location decisions in terms of the techniques used to analyze them?
Answer:  Service location decisions tend to focus on the revenue function, whereas manufacturing/industrial location decisions tend to focus on costs. The service sector uses techniques such as regression analysis, traffic counts, demographic analysis, purchasing power analysis, and GIS. Services do share two methods with manufacturing firms: the factor-weighting approach and the center-of-gravity method.
Diff: 3
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


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.
Answer:  The variables are: (1) the price of the inn, (2) median income levels, (3) the state population per inn, and (4) the location of nearby colleges. Some of those tested that did not have a large impact on profits include: the number of hotel rooms in the vicinity and their average room rates; local attractions such as office buildings and hospitals that drew potential customers to a 4-mile trade area; local population and unemployment rate; the number of inns in a region; and physical characteristics of the site, such as ease of access or sign visibility.
Diff: 3
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

Section 5   Geographic Information Systems

1) What describes a system that stores and displays information that can be linked to a geographic location?

1. A) AIS
2. B) LOC
3. C) GLOC
4. D) LIS
5. E) GIS

Answer:  E
Diff: 2
Key Term:  Geographic information system (GIS)
AACSB:  Information technology
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection
2) Geographic information systems can assist the location decision by:

1. A) automating center-of-gravity problems.
2. B) computerizing factor-rating analysis.
3. C) combining geography with demographic analysis.
4. D) updating transportation method solutions.
5. E) providing good Internet placement for virtual storefronts.

Answer:  C
Diff: 2
Key Term:  Geographic information system (GIS)
AACSB:  Information technology
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection

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 ________.
Answer:  geographic information systems or GIS
Diff: 1
Key Term:  Geographic information system (GIS)
AACSB:  Information technology
Objective:  LO 8.6 Understand the differences between service- and industrial-sector location analysis
Learning Outcome:  Discuss factors affecting location decision and describe common methods for location selection


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Introduction to Operations and Supply Chain Management, 4th Edition, Cecil B. Bozarth, Robert B. Handfield, 2016 
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