OPM530 INTRODUCTION TO OPERATIONS MANAGEMENT

CASE STUDY 2 – LOCATION

PREPARED FOR:
DR. IRWAN BIN IBRAHIM

PREPARED BY:
AZWAN BIN RAMLI (2020633306)
MUHAMMAD HAFIZI BIN AZEMI (2020447412)
NURUL AISYAH AFIQAH BINTI AHMAD TAJURI (2020471344)
SYARAH NUR QISTINA BINTI IDROS (2020803074)
 Case Study 2 – Location

Hyundai Motors is considering three sites—A, B, and C—at which to locate a factory to build its new-model
automobile, the Hyundai Sport C150. The goal is to locate at a minimum-cost site, where cost is measured by the
annual fixed plus variable costs of production. Hyundai Motors has gathered the following data:

The firm knows it will produce between 0 and 60,000 Sport C150s at the new plant each year, but, thus far, that is the
extent of its knowledge about production plans.
a) For what values of volume, V, of production, if any, is site C a recommended site?
b) What volume indicates site A is optimal?
c) Over what range of volume is site B optimal? Why?
 Annualized Fixed Cost Variable Cost Per Auto Produced Total Cost
Sites Volume Optimal Volume Cost ($)
($) ($) ($)
85,000,00
A 10,000,000 2,500 60,000 160,000,000 30,000
0
Total Cost = Fixed 85,000,00
B 20,000,000 2,000 Cost + (Variable60,000
Cost x Volume)
140,000,000 32,500
0
Sites / Volume 0 10,000 20,000 30,000 40,000 50,000 60,000
C 25,000,000 1,000 60,000 85,000,000
A 10,000,000 35,000,000 60,000,000 85,000,000 110,000,000 135,000,000 160,000,000
B 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000
C 25,000,000 35,000,000 45,000,000 55,000,000 65,000,000 75,000,000 85,000,000

Answer:

a) A volume value of 10,000 is recommended at site C.

b) The volume indicating that site A is optimal is a volume of 0 to 10,000.
c) Site B is not optimal for any volume range because Site A and Site C are more cost-effective. Site B is optimal for
volumes above 26,000 Sport C150s 0 B. Site B is never optimal because its cost line always exceeds that of A or
C for all volume levels. OC.