An operations manager is deciding on the level of automation for a new process. The fixed cost for automation includes the equipment purchase price, installation, and initial spare parts. The variable costs per unit for each level of automation are primarily labor related. Alternative Fixed Costs Variable Costs per Unit A $100,000 $49 B $300,000 $36 C $500,000 $24 D $600,000 $18 We now have some additional information that can help us make a better decision. The selling price of each unit is $146. Based on past sales data, marketing has projected that the probabilities of future demand levels are: Future Demand (units) Probability 5,000 0.33 10,000 0.14 15,000 0.25 20,000 0.28 What is the expected value of Option D?
An operations manager is deciding on the level of automation for a new process. The fixed cost for automation includes the equipment purchase price, installation, and initial spare parts. The variable costs per unit for each level of automation are primarily labor related. Alternative Fixed Costs Variable Costs per Unit A $100,000 $49 B $300,000 $36 C $500,000 $24 D $600,000 $18 We now have some additional information that can help us make a better decision. The selling price of each unit is $146. Based on past sales data, marketing has projected that the probabilities of future demand levels are: Future Demand (units) Probability 5,000 0.33 10,000 0.14 15,000 0.25 20,000 0.28 What is the expected value of Option D?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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An operations manager is deciding on the level of automation for a new process. The fixed cost for automation includes the equipment purchase price, installation, and initial spare parts. The variable costs per unit for each level of automation are primarily labor related.
Alternative
Fixed Costs
Variable Costs per Unit
A
$100,000
$49
B
$300,000
$36
C
$500,000
$24
D
$600,000
$18
We now have some additional information that can help us make a better decision. The selling price of each unit is $146. Based on past sales data, marketing has projected that the probabilities of future demand levels are:
Future Demand (units)
Probability
5,000
0.33
10,000
0.14
15,000
0.25
20,000
0.28
What is the expected value of Option D?
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