REQUIRED:

1.2.1 Discuss the three steps involved in locational break-even analysis. (2)

1.2.2 On the basis of the data on the three locations provided above, use a locational cost-volume analysis to determine the most suitable location for the IKEA facility in South Africa. As part of the analysis, plot the cost curve for each of the three location on the same graph, determine the total cost for each location, and the expected profit for each location. For the plots, use volume from 0 to 7400 at intervals of 200. (8)

1.2 Suppose that IKEA is considering locating a new IKEA facility in South Africa and that the company is considering three possible locations - Johannesburg, Cape Town, and Durban for the location of the facility. The company has obtained the following data for the three locations: Location Johannesburg Cape Town Total fixed costs R600 000 R1 200 000 Direct material cost per unit R400 R200 Direct labour cost per unit R150 R120 Variable overhead per unit R200 R180 Durban R2 200 000 R130 R100 R120 The company wishes to find the most economical location for an expected volume of 5 000 units of a furniture set per year. Assume that the expected average selling price for a unit of the furniture set is R2 500