Locational break even analysis

IT talks about break even analysis,how does it help the company in choosing a location,IT talks about the importance and limitations of the analysis.

1. LOCATIONAL BREAK EVEN ANALYSIS NIKITA NALAVADE

2. INTRODUCTION

3. ASSUMPTIONS Cost divided into fixed and variable cost Constant fixed cost Variable cost fluctuate in direct propotion to volume of output Constant selling price No change in technology and production method Unit of production=sales

4. IMPORTANCE

5. EXAMPLE Ice factory location Annual Demand =3000 units Selling price/unit=Rs 300/unit Total Cost=Fixed cost+(Variable Cost*Demand) SITES FIXED COST(F) VARIABLE COST(V) F+(V*Demand) MUMBAI 50000 135 4,55,000 AHMEDABAD 100000 110 4,30,000 BANGALORE 120000 120 4,80,000

6. From the above table we come to know that the lowest total cost is for Ahmedabad for annual demand of 3000 units Hence the ice cream factory should be established at Ahmedabad.

7. FACTORS AFFECTING LOCATION DECISION

8. LIMITATIONS Its accuracy depends on accuracy of the data Long term forecasting is difficult Depreciation is not considered Output may not be equal to sales Products not sold at the same price at different levels of output

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