LOCATIONAL ECONOMICS - Production and Operations Management

An ideal location is one which results in lowest production cost and least distribution cost per unit. These costs are influenced by a number of factors as discussed earlier. The various costs which decide locational economy are those of land, building, equipment, labor, material, etc. Other factors like community attitude, community facilities and housing facilities will also influence the selection of best location. Economic analysis is carried out to decide as to which locate best location. The following illustration will clarify the method of evaluation of best layout selection.

ILLUSTRATION 6:
From the following data select the most advantageous location for setting a plant for making transistor radios.

ILLUSTRATION 6

SOLUTION:

ILLUSTRATION 6

Rate of return (RoR), % =

(Total sales-Total expenses)× 100
Total investment

RoR for Site X =

(2,50,000-1,95,000)× 100
2,00,000

=27.5%

RoR for Site Y =

(3,00,000-2,15,000)× 100
2,00,000

=42.5%

RoR for Site Z=

(2,50,000-2,35,000)× 100
2,00,000

=7.5%

Location Y can be selected because of higher rate of return.


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Production and Operations Management Topics