Law and best practices - Plant location exercise

Group 2
Adhaar Agarwal
Ashima Srivasthav
Kiran Kumar N
Prashanth Rathore

Baseline
Country Sold Into:
Plant Location
Raw Materials from

Freetradia
Freetradia
Freetradia

Isolated States
Isolated States
Isolated States

Freetradia
Freetradia
Developia

Plant construction Costs

$10,000,000

$8,000,000

$10,000,000

Number of Units Made

A Cost
B Cost
C Cost
Total Material Cost
Labor
OH Applied
Transportation cost
Tariff
Total Cost of Charger

1,000,000.00

1,000,000.00

$
$
$
$
$
$

2.00
6.00
10.00
18.00
12.00
10.00

$
$
$
$
$
$

40.00 $

1,000,000.00

Raw Materials
2.00 $
2.00
6.00 $
4.00
10.00 $
7.00
18.00 $
13.00
12.00 $
12.00
8.00 $
10.00

38.00 $

35.00

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

Total cost of project
(
$ 50,000,000.00 $ 46,000,000.00 $ 45,000,000.00
production + plant)

Cost of production in Freetadia when raw material imported from Developia has decreased
Cost of production in Isolated States when raw material imported from Developia has increased
Tariff in Isolated states protects the local manufacturers of Isolated states. Theses tariff minimise the difference b
production

ne
Isolated States
Isolated States
Developia

Freetradia
Developia
Developia

Isolated States
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

1.00
3.00
5.00
9.00
4.00
4.00
4.00

1.00
3.00
5.00
9.00
4.00
4.00
4.00
13.00
34.00

erials
$
$
$
$
$
$

3.00
7.00
12.00
22.00
12.00
8.00

$
$
$
$
$
$
$

42.00 $

$
$
$
$
$
$
$
$
21.00 $

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

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

opia has decreased

Developia has increased
es. Theses tariff minimise the difference between per unit cost of

Scenario 1
Country Sold Into:
Plant Location

Freetradia
Freetradia

Isolated States
Isolated States

Freetradia
Freetradia

Isolated States
Isolated States

Raw Materials from

Freetradia

Isolated States

Developia

Developia

$10,000,000

$8,000,000

$10,000,000

$ 8,000,000.00

1000000.00

1000000.00

1000000.00

1000000.00

Plant construction
Costs
Number of Units
Made
A Cost
B Cost
C Cost
Total Material Cost
Labor
OH Applied
Transportation cost
Tariff

$
$
$
$
$
$

Total Cost of Charger $

Total cost of
production

2.00
6.00
10.00
18.00
12.00
10.00

$
$
$
$
$
$

40.00 $

2.00
6.00
10.00
18.00
12.00
8.00

Raw Materials
`
$
4.75
$
8.25
$
13.00
$
12.00
$
10.00

38.00 $

$
$
$
$
$
$

3.25
7.75
13.25
24.25
12.00
8.00

35.00 $

44.25

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

Total cost of project

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

$ 45,000,000.00 $ 52,250,000.00

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

Freetradia
Developia

Isolated States
Developia

Developia

Developia

$4,000,000

$ 4,000,000.00

1000000.00

1000000.00

$
$
$
$
$
$
$

1.25
3.75
6.25
11.25
5.00
4.00
4.00

$
$
$
$
$
$
$
$

1.25
3.75
6.25
11.25
5.00
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

rges to Freetradia and Isolated States

Scenario 2
Country Sold Into:
Plant Location
Raw Materials from

Freetradia
Freetradia
Freetradia

Isolated States
Isolated States
Isolated States

Freetradia
Freetradia
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
B Cost
C Cost
Total Material Cost
Labor
OH Applied
Transportation cost
Tariff
Total Cost of Charger
Total cost of production

$
$
$
$
$
$

2.00
6.00
10.00
18.00
12.00
10.00

$
$
$
$
$
$

40.00 $

Raw Materials
2.00 $
2.00
6.00 $
4.00
10.00 $
7.00
18.00 $
13.00
12.00 $
12.00
8.00 $
10.00

38.00 $

35.00

$ 40,000,000.00 $ 38,000,000.00 $ 35,000,000.00

Cost after adding return

cost of 25%
Total cost of project
(
$ 50,000,000.00 $ 46,000,000.00 $ 45,000,000.00
production + plant)
In this scenario its cheaper to produce the material in isolated states and sell in isolated states. For Freetradia, its
Developia and export it to Freetradia

io 2
Isolated States
Isolated States
Developia
$

Freetradia
Developia
Developia

8,000,000.00

$4,000,000

1000000.00

Isolated States
Developia
Developia
$

1000000.00

4,000,000.00
1000000.00

erials
$
$
$
$
$
$

3.00
7.00
12.00
22.00
12.00
8.00

$
$
$
$
$
$
$

42.00 $

1.00
3.00
5.00
9.00
4.00
4.00
4.00

$
$
$
$
$
$
$
$
21.00 $

1.00
3.00
5.00
9.00
4.00
4.00
4.00
13.00
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

d sell in isolated states. For Freetradia, its still cheaper to produce in

Scenario 3
Country Sold Into:
Plant Location
Raw Materials from
Plant construction
Costs
Number of Units Made

Freetradia
Freetradia
Freetradia

Isolated States
Isolated States
Isolated States

Freetradia
Freetradia
Developia

Isolated States
Isolated States
Developia

$10,000,000

$8,000,000

$10,000,000

$ 8,000,000.00

1000000.00

1000000.00

1000000.00

1000000.00

A Cost
B Cost
C Cost
Total Material Cost
Labor
OH Applied
Transportation cost
Tariff

$
$
$
$
$
$

2.00
6.00
10.00
18.00
12.00
10.00

Total Cost of Charger

40.00 $

Total cost of
production
Total cost of project
( production + plant)

$
$
$
$
$
$

Raw Materials
2.00 $
1.25
6.00 $
3.25
10.00 $
5.50
18.00 $
10.00
12.00 $
12.00
8.00 $
10.00

38.00 $

$
$
$
$
$
$

2.25
6.25
10.50
19.00
12.00
8.00

32.00 $

39.00

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

$ 50,000,000.00 $ 46,000,000.00 $ 42,000,000.00 $ 47,000,000.00

The cost to produce in developia and sent to isolated states is higher than that of producing the charger in isolate
material. All though the cost of plant in Developia is the lowest, this is just a one time cost and thus for long term
negligible.

Freetradia
Developia
Developia

Isolated States
Developia
Developia

$4,000,000

$ 4,000,000.00

1000000.00

1000000.00

$
$
$
$
$
$
$

1.00
3.00
5.00
9.00
4.00
4.00
10.00

$
$
$
$
$
$
$
$

1.00
3.00
5.00
9.00
4.00
4.00
10.00
13.00

27.00 $

40.00

$ 27,000,000.00 $ 40,000,000.00
$ 31,000,000.00 $ 44,000,000.00

ng the charger in isolated states with local raw

t and thus for long term production it becomes
e

Scenar
Country Sold Into:
Plant Location
Raw Materials from
Plant construction Costs
Number of Units made before
revolution
Number of Units made after
revolution

Freetradia
Freetradia
Freetradia
$10,000,000

Isolated States
Isolated States
Isolated States
$8,000,000

Freetradia
Freetradia
Developia
$10,000,000

1000000.00

1000000.00

200000.00

Raw Materials
A Cost
B Cost
C Cost
Total Material Cost
Labor
OH Applied
Transportation cost
Tariff
Total Cost of Charger
Total cost of production
Cost of Production

$
$
$
$
$
$

2.00
6.00
10.00
18.00
12.00
10.00

$
$
$
$
$
$

2.00
6.00
10.00
18.00
12.00
8.00

$
$
$
$
$
$

2.00
4.00
7.00
13.00
12.00
10.00

$
40.00 $
38.00 $
35.00
$ 40,000,000.00 $ 38,000,000.00 $ 7,000,000.00
$

35,000,000.00

Revenue Generated : Taking

cost of risk into consideration
(Weighted average)

22,750,000.00

Cost of Risk

12,250,000.00

45,000,000.00

Total cost of project

(
production + plant)

$ 50,000,000.00

$ 46,000,000.00

Scenario 4
Freetradia
Freetradia
Developia
$10,000,000

Isolated States
Isolated States
Developia
$ 8,000,000.00

Isolated States
Isolated States
Developia
$ 8,000,000.00

Freetradia
Developia
Developia
$4,000,000

200000.00

200000.00

800000.00
$
$
$
$
$
$

Raw Materials
2.00
4.00
7.00
13.00
12.00
10.00

Freetradia
Developia
Developia
$4,000,000

800000.00
$
$
$
$
$
$

3.00
7.00
12.00
22.00
12.00
8.00

$
$
$
$
$
$

3.00
7.00
12.00
22.00
12.00
8.00

800000.00
$
$
$
$
$
$
$

1.00
3.00
5.00
9.00
4.00
4.00
4.00

$
$
$
$
$
$
$

1.00
3.00
5.00
9.00
4.00
20.00
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
35,000,000.00 $
42,000,000.00 $
33,800,000.00
22,750,000.00

27,300,000.00

23,250,000.00

12,250,000.00

14,700,000.00

10,550,000.00

45,000,000.00

50,000,000.00

37,800,000.00

Isolated States
Developia
Developia
$ 4,000,000.00

Isolated States
Developia
Developia
$ 4,000,000.00

200000.00
800000.00
$
1.00
$
3.00
$
5.00
$
9.00
$
4.00
$
4.00
$
4.00
$
13.00
$
34.00
$ 6,800,000.00
$

$
1.00
$
3.00
$
5.00
$
9.00
$
4.00
$
20.00
$
4.00
$
13.00
$
50.00
$ 40,000,000.00
46,800,000.00

31,700,000.00

15,100,000.00

50,800,000.00

Scenario 5
Country Sold Into:
Plant Location
Raw Materials from

Freetradia
Freetradia
Freetradia

Isolated States
Isolated States
Isolated States

Freetradia
Freetradia
Developia

Freetradia
Freetradia
Developia

Plant construction Costs

$10,000,000

$8,000,000

$10,000,000

$10,000,000

Number of Units made

before revolution

1000000.00

1000000.00

200000.00

Number of Units made

after revolution
A Cost
B Cost
C Cost
Total Material Cost
Labor
OH Applied
Transportation cost
Tariff
Total Cost of Charger
Total cost of production

800000.00
$
$
$
$
$
$

2.00
6.00
10.00
18.00
12.00
10.00

$
$
$
$
$
$

40.00 $

2.00
6.00
10.00
18.00
12.00
8.00

$
$
$
$
$
$

38.00 $

2.00
4.00
7.00
13.00
12.00
10.00

$
$
$
$
$
$

35.00 $

Raw Materials
2.00
4.00
7.00
13.00
12.00
10.00

35.00

$ 40,000,000.00 $ 38,000,000.00 $ 7,000,000.00 $ 28,000,000.00

$
Cost of Production
Average cost of
$
40.00 $
38.00 $
Production
Total cost of project
(
$ 50,000,000.00 $ 46,000,000.00 $
production + plant)

35,000,000.00
35.00
45,000,000.00

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 Developia will be
3. Overnight global shipments are costly and time bound. As the consignment has to travel by air they have a fi
the consignment.

Scenario 5
Isolated States
Isolated States
Developia

Isolated States
Isolated States
Developia

Freetradia
Developia
Developia

Freetradia
Developia
Developia

Isolated States
Developia
Developia

Isolated States
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

Raw Materials
$
$
$
$
$
$

3.00
7.00
12.00
22.00
12.00
8.00

$
$
$
$
$
$

42.00 $

3.00
7.00
12.00
22.00
12.00
8.00

800000.00
$
$
$
$
$
$
$

42.00 $

1.00
3.00
5.00
9.00
4.00
4.00
25.00

$
$
$
$
$
$
$

42.00 $

800000.00

1.00
3.00
5.00
9.00
4.00
20.00
4.00

$
$
$
$
$
$
$
$
37.00 $

1.00
3.00
5.00
9.00
4.00
4.00
25.00
13.00
55.00

$
$
$
$
$
$
$
$
$

1.00
3.00
5.00
9.00
4.00
20.00
4.00
13.00
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

$

42,000,000.00 $

38,000,000.00 $

51,000,000.00

42.00 $

38.00 $

51.00

50,000,000.00

42,000,000.00

55,000,000.00

tion in Developia will be more and the sources are not reliable.
avel by air they have a fixed time when the consignment should be delivered after which they will not be able to take