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Law and best practices - Plant location exercise

Group 2

Adhaar Agarwal

Ashima SrivasthavKiran Kumar N

Prashanth Rathore

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Country Sold Into: Freetradia Isolated States Freetradia

Plant Location Freetradia Isolated States Freetradia

Raw Materials from Freetradia Isolated States Developia

Plant construction Costs $10,000,000 $8,000,000 $10,000,000

Number of Units Made 1,000,000.00 1,000,000.00 1,000,000.00

A Cost $ 2.00 $ 2.00 $ 2.00

B Cost $ 6.00 $ 6.00 $ 4.00

C Cost $ 10.00 $ 10.00 $ 7.00

Total Material Cost $ 18.00 $ 18.00 $ 13.00

Labor $ 12.00 $ 12.00 $ 12.00

OH Applied $ 10.00 $ 8.00 $ 10.00

Transportation cost

Tariff

Total Cost of Charger $ 40.00 $ 38.00 $ 35.00

Total cost of production $ 40,000,000.00 $ 38,000,000.00 $ 35,000,000.00

Total cost of project (

production + plant) 50,000,000.00$ 46,000,000.00$ 45,000,000.00$

Tariff in Isolated states protects the local manufacturers of Isolated states. Theses tproduction

Baseline

Cost of production in Freetadia when raw material imported from Developia has de

Cost of production in Isolated States when raw material imported from Developia h

Raw Materials

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Isolated States Freetradia Isolated States

Isolated States Developia Developia

Developia Developia Developia

8,000,000.00$ $4,000,000 4,000,000.00$

1,000,000.00 1,000,000.00 1,000,000.00

3.00$ $ 1.00 1.00$

7.00$ $ 3.00 3.00$

12.00$ $ 5.00 5.00$

$ 22.00 $ 9.00 $ 9.00

12.00$ $ 4.00 4.00$

8.00$ $ 4.00 4.00$

$ 4.00 4.00$

13.00$

$ 42.00 $ 21.00 $ 34.00

$ 42,000,000.00 $ 21,000,000.00 $ 34,000,000.00

50,000,000.00$ 25,000,000.00$ 38,000,000.00$

riff minimise the difference between per unit cost of

reased

s increased

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Country Sold Into: Freetradia Isolated States Freetradia Isolated States

Plant Location Freetradia Isolated States Freetradia Isolated States

Raw Materials from Freetradia Isolated States Developia Developia

Plant constructionCosts

$10,000,000 $8,000,000 $10,000,000 8,000,000.00$

Number of Units

Made1000000.00 1000000.00 1000000.00 1000000.00

A Cost $ 2.00 $ 2.00 ` 3.25$

B Cost $ 6.00 $ 6.00 $ 4.75 7.75$

C Cost $ 10.00 $ 10.00 $ 8.25 13.25$

Total Material Cost $ 18.00 $ 18.00 $ 13.00 $ 24.25

Labor $ 12.00 $ 12.00 $ 12.00 12.00$

OH Applied $ 10.00 $ 8.00 $ 10.00 8.00$

Transportation cost

Tariff

Total Cost of Charger $ 40.00 $ 38.00 $ 35.00 $ 44.25

Total cost of

production$ 40,000,000.00 $ 38,000,000.00 $ 35,000,000.00 $ 44,250,000.00

Total cost of project

( production + plant)$ 50,000,000.00 46,000,000.00$ $ 45,000,000.00 52,250,000.00$

Raw Materials

Its still cheaper for the company to setup plants in Developia and export assembled charges to Free

Scenario 1

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Freetradia Isolated States

Developia Developia

Developia Developia

$4,000,000 4,000,000.00$

1000000.00 1000000.00

$ 1.25 1.25$

$ 3.75 3.75$

$ 6.25 6.25$

$ 11.25 $ 11.25

$ 5.00 5.00$

$ 4.00 4.00$

$ 4.00 4.00$

13.00$

$ 24.25 $ 37.25

$ 24,250,000.00 $ 37,250,000.00

$ 28,250,000.00 41,250,000.00$

radia and Isolated States

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Country Sold Into: Freetradia Isolated States Freetradia

Plant Location Freetradia Isolated States Freetradia

Raw Materials from Freetradia Isolated States Developia

Plant construction Costs $10,000,000 $8,000,000 $10,000,000

Number of Units Made 1000000.00 1000000.00 1000000.00

A Cost $ 2.00 $ 2.00 $ 2.00

B Cost $ 6.00 $ 6.00 $ 4.00

C Cost $ 10.00 $ 10.00 $ 7.00

Total Material Cost $ 18.00 $ 18.00 $ 13.00

Labor $ 12.00 $ 12.00 $ 12.00

OH Applied $ 10.00 $ 8.00 $ 10.00

Transportation cost

Tariff

Total Cost of Charger $ 40.00 $ 38.00 $ 35.00

Total cost of production $ 40,000,000.00 $ 38,000,000.00 $ 35,000,000.00

Cost after adding return

cost of 25%

Total cost of project (

production + plant)$ 50,000,000.00 $ 46,000,000.00 $ 45,000,000.00

Raw Materials

In this scenario its cheaper to produce the material in isolated states and sell in isola

Developia and export it to Freetradia

Scenario 2

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Isolated States Freetradia Isolated States

Isolated States Developia Developia

Developia Developia Developia

$ 8,000,000.00 $4,000,000 $ 4,000,000.00

1000000.00 1000000.00 1000000.00

$ 3.00 $ 1.00 $ 1.00

$ 7.00 $ 3.00 $ 3.00

$ 12.00 $ 5.00 $ 5.00

$ 22.00 $ 9.00 $ 9.00

$ 12.00 $ 4.00 $ 4.00

$ 8.00 $ 4.00 $ 4.00

$ 4.00 $ 4.00

$ 13.00

$ 42.00 $ 21.00 $ 34.00

$ 42,000,000.00 $ 21,000,000.00 $ 34,000,000.00

$ 26,250,000.00 $ 42,500,000.00

$ 50,000,000.00 $ 30,250,000.00 $ 46,500,000.00

ted states. For Freetradia, its still cheaper to produce in

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Country Sold Into: Freetradia Isolated States Freetradia Isolated States

Plant Location Freetradia Isolated States Freetradia Isolated States

Raw Materials from Freetradia Isolated States Developia Developia

Plant construction

Costs

$10,000,000 $8,000,000 $10,000,000 8,000,000.00$

Number of Units Made 1000000.00 1000000.00 1000000.00 1000000.00

A Cost $ 2.00 $ 2.00 $ 1.25 2.25$

B Cost $ 6.00 $ 6.00 $ 3.25 6.25$

C Cost $ 10.00 $ 10.00 $ 5.50 10.50$

Total Material Cost $ 18.00 $ 18.00 $ 10.00 $ 19.00

Labor $ 12.00 $ 12.00 $ 12.00 12.00$

OH Applied $ 10.00 $ 8.00 $ 10.00 8.00$

Transportation cost

Tariff

Total Cost of Charger $ 40.00 $ 38.00 $ 32.00 $ 39.00

Total cost of

production$ 40,000,000.00 $ 38,000,000.00 $ 32,000,000.00 $ 39,000,000.00

Total cost of project

( production + plant) 50,000,000.00$ 46,000,000.00$ 42,000,000.00$ 47,000,000.00$

Raw Materials

The cost to produce in developia and sent to isolated states is higher than that of producing the char

material. All though the cost of plant in Developia is the lowest, this is just a one time cost and thus f

negligible.

Scenario 3

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Freetradia Isolated States

Developia Developia

Developia Developia

$4,000,000 4,000,000.00$

1000000.00 1000000.00

$ 1.00 1.00$

$ 3.00 3.00$

$ 5.00 5.00$

$ 9.00 $ 9.00

$ 4.00 4.00$

$ 4.00 4.00$

$ 10.00 10.00$

13.00$

$ 27.00 $ 40.00

$ 27,000,000.00 $ 40,000,000.00

31,000,000.00$ 44,000,000.00$

e

er in isolated states with local raw

r long term production it becomes

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Country Sold Into: Freetradia Isolated States Freetradia

Plant Location Freetradia Isolated States Freetradia

Raw Materials from Freetradia Isolated States Developia

Plant construction Costs $10,000,000 $8,000,000 $10,000,000

Number of Units made beforerevolution

1000000.00 1000000.00 200000.00

Number of Units made after

revolution

A Cost $ 2.00 $ 2.00 $ 2.00

B Cost $ 6.00 $ 6.00 $ 4.00

C Cost $ 10.00 $ 10.00 $ 7.00

Total Material Cost $ 18.00 $ 18.00 $ 13.00

Labor $ 12.00 $ 12.00 $ 12.00

OH Applied $ 10.00 $ 8.00 $ 10.00

Transportation cost

Tariff

Total Cost of Charger $ 40.00 $ 38.00 $ 35.00

Total cost of production $ 40,000,000.00 $ 38,000,000.00 $ 7,000,000.00

Cost of Production

Revenue Generated : Taking

cost of risk into consideration

(Weighted average)

Cost of Risk

Total cost of project (

production + plant)50,000,000.00$ 46,000,000.00$ $

$

$

$

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Freetradia Isolated States Isolated States Freetradia Freetradia

Freetradia Isolated States Isolated States Developia Developia

Developia Developia Developia Developia Developia

$10,000,000 8,000,000.00$ 8,000,000.00$ $4,000,000 $4,000,000

200000.00 200000.00

800000.00 800000.00 800000.00

$ 2.00 3.00$ 3.00$ $ 1.00 $ 1.00

$ 4.00 7.00$ 7.00$ $ 3.00 $ 3.00

$ 7.00 12.00$ 12.00$ $ 5.00 $ 5.00

$ 13.00 $ 22.00 $ 22.00 $ 9.00 $ 9.00

$ 12.00 12.00$ 12.00$ $ 4.00 $ 4.00

$ 10.00 8.00$ 8.00$ $ 4.00 $ 20.00

$ 4.00 $ 4.00

$ 35.00 $ 42.00 $ 42.00 $ 21.00 $ 37.00

$ 28,000,000.00 $ 8,400,000.00 $ 33,600,000.00 $ 4,200,000.00 $ 29,600,000.00

Scenario 4

Raw Materials

45,000,000.00 50,000,000.00$ 37,800,000.00$

35,000,000.00 $ 42,000,000.00 $ 33,800,000.00

12,250,000.00 $ 14,700,000.00

22,750,000.00 $ 27,300,000.00 $ 23,250,000.00

$ 10,550,000.00

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Isolated States Isolated States

Developia Developia

Developia Developia

4,000,000.00$ 4,000,000.00$

200000.00

800000.00

1.00$ 1.00$

3.00$ 3.00$

5.00$ 5.00$

$ 9.00 $ 9.00

4.00$ 4.00$

4.00$ 20.00$

4.00$ 4.00$

13.00$ 13.00$

$ 34.00 $ 50.00

$ 6,800,000.00 $ 40,000,000.00

50,800,000.00$

$ 46,800,000.00

$ 31,700,000.00

$ 15,100,000.00

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Country Sold Into: Freetradia Isolated States Freetradia Freetradia

Plant Location Freetradia Isolated States Freetradia Freetradia

Raw Materials from Freetradia Isolated States Developia Developia

Plant construction Costs $10,000,000 $8,000,000 $10,000,000 $10,000,000

Number of Units made

before revolution1000000.00 1000000.00 200000.00

Number of Units made

after revolution800000.00

A Cost $ 2.00 $ 2.00 $ 2.00 $ 2.00

B Cost $ 6.00 $ 6.00 $ 4.00 $ 4.00

C Cost $ 10.00 $ 10.00 $ 7.00 $ 7.00

Total Material Cost $ 18.00 $ 18.00 $ 13.00 $ 13.00

Labor $ 12.00 $ 12.00 $ 12.00 $ 12.00

OH Applied $ 10.00 $ 8.00 $ 10.00 $ 10.00

Transportation cost

Tariff

Total Cost of Charger $ 40.00 $ 38.00 $ 35.00 $ 35.00

Total cost of production $ 40,000,000.00 $ 38,000,000.00 $ 7,000,000.00 $ 28,000,000.00

Cost of Production

Average cost of

Production$ 40.00 $ 38.00

Total cost of project (production + plant) 50,000,000.00$ 46,000,000.00$

S

$ 35.00

Raw Materia

$ 35,000,000.00

1. The average cost of production should be charged to breakeven

2. "I told you so" peple will say that they had already predicted that the cost of production in Deve

3. Overnight global shipments are costly and time bound. As the consignment has to travel by air t

the consignment.

45,000,000.00$

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Isolated States Isolated States Freetradia Freetradia Isolated States Isolated States

Isolated States Isolated States Developia Developia Developia Developia

Developia Developia Developia Developia Developia Developia

8,000,000.00$ 8,000,000.00$ $4,000,000 $4,000,000 4,000,000.00$ 4,000,000.00$

200000.00 200000.00 200000.00

800000.00 800000.00 800000.00

3.00$ 3.00$ $ 1.00 $ 1.00 1.00$ 1.00$

7.00$ 7.00$ $ 3.00 $ 3.00 3.00$ 3.00$

12.00$ 12.00$ $ 5.00 $ 5.00 5.00$ 5.00$

$ 22.00 $ 22.00 $ 9.00 $ 9.00 $ 9.00 $ 9.00

12.00$ 12.00$ $ 4.00 $ 4.00 4.00$ 4.00$

8.00$ 8.00$ $ 4.00 $ 20.00 4.00$ 20.00$

$ 25.00 $ 4.00 25.00$ 4.00$

13.00$ 13.00$

$ 42.00 $ 42.00 $ 42.00 $ 37.00 $ 55.00 $ 50.00

$ 8,400,000.00 $ 33,600,000.00 $ 8,400,000.00 $ 29,600,000.00 $11,000,000.00 $ 40,000,000.00

cenario 5

$ 42.00 $ 38.00 $ 51.00

ls

$ 42,000,000.00 $ 38,000,000.00 $ 51,000,000.00

lopia will be more and the sources are not reliable.

hey have a fixed time when the consignment should be delivered after which they will not be able to take

50,000,000.00$ 42,000,000.00$ 55,000,000.00$