Location Planning and Analysis
Review this brief overview of Location Cost-Volume-Profit Analysis, which should help you to understand the financial aspects of choosing a location. In addition consider the factors that influences the location of a new facility. This is important because a poor choice can make it very difficult to meet demand and manage costs effectively.
Location Cost-Volume-Profit Analysis:
The Cost-Volume-Profit (CVP) Analysis can be represented either mathematically or graphically. It involves three steps:
- For each location alternative, determine the fixed and variable costs
- For all locations, plot the total-cost lines on the same graph
- Use the lines to determine which alternatives will have the highest and lowest total costs for expected levels of output.
Additionally, there are four assumptions one must keep in mind when using this method:
- Fixed costs are constant.
- Variable costs are linear.
- Required level of output can be closely estimated.
- There is only one product involved.
Total cost = FC + v(Q), where FC=Fixed Cost, v=Variable Cost per Unit, Q=Number of Units.
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