Exercise 2

The operations manager for Mile-High Lemonade narrowed the search for a new facility location to seven communities. Annual fixed costs (land, property taxes, insurance, equipment, and buildings) and variable costs (labor, materials, transportation, and variable overhead) are shown in Table 2.

a. Which of the communities can be eliminated from further consideration because they are dominated (both variable and fixed costs are higher) by another community?

b. Plot the total cost curves for all remaining communities on a single graph. Identify on the graph the approximate range over which each community provides the lowest cost.

c. Using break-even analysis, calculate the break-even quantities to determine the range over which each community provides the lowest cost.

Exercise 3

A manager seeks to find the location that minimize the cost of transporting raw materials from suppliers and finished goods to the markets served. Given the data below, what is the center of gravity and how much is the total transportation cost of this location?