An operations manager is decid op on the level of automation for a new process. The fixed cost for automation includes the ecttxprnent purchase once. instal ation, and initial spare parts. The variable costs per unit for each level of automation are primarily labor related. The selling price of each unrt b $80. The costs of each alternative are below:
|
Alternative
|
Fixed
|
Variable
|
|
|
Costs
|
Costs per
|
|
|
|
Una
|
|
A
|
$100,000
|
$58
|
|
B
|
$280.000
|
$39
|
|
C
|
$560.000
|
$21
|
Based on past sales data, marketing has projected the following probabilities of future demand:
|
Future
|
Probability
|
|
Demand
(units)
|
|
|
5.000
|
0.20
|
|
10.000
|
0.30
|
|
15,000
|
0.50
|
What is the expected value of the alternative that you would choose?
(Hint : Excel may make t ease to calculate out the decision tree of al the postede expected values)
Round your answer to the nearest whole number and DO NOT Include the 5 sign or a comma.