Expected values and using decision tree approach

Assignment Help Operation Management

Reference no: EM132274009

Spencerville Products is expanding its operations west of the Mississippi. Its first step is to build a manufacturing facility in Denver to satisfy demand on the West Coast it will not produce any items not needed to meet demand. Spencerville has an option to build either a large facility that has an annual output of 500,000 units per year or a smaller facility with an output of 250,000 units per year. It must build one of these two facilities - it does not have any other options.

The expected demand for the company's products is shown as either high or moderate in the table below:

Demand Level Annual Demand (units/year) Probability

High 450,000 0.6

Moderate 200,000 0.4

The small facility has a profit of $5.50 per unit. The large facility has a profit of $4.00/unit.

a) What size facility should Spencerville Products build based on expected values and using a decision tree approach? You must also provide the decision tree using the appropriate decision tree symbols.

b) Keeping all other information except for the profit per unit for the small facility items, what would the profit per unit for the small facility have to be so that the expected values of the large and small facilities are equal?

Reference no: EM132274009

Questions Cloud

Different aspect of collective bargaining such as picketing : Each area can be an entirely different aspect of collective bargaining such as picketing, strikers, unions, enforcement, etc.

Diversified firm produces computers branded : A diversified firm produces computers branded as LightSpeed Computers, and they also make tablets called LightSpeed Personal Assistants.

Human factor to consider in undertaking business activity : There is always a human factor to consider in undertaking any business activity.

Corporate management vs. plant management : In the same post give a reaction to the Frontline movie "A Dangerous Business". What was the role of Corporate Management vs. Plant Management?

Expected values and using decision tree approach : What size facility should Spencerville Products build based on expected values and using a decision tree approach?

Over what range of product would each plant be preferred : Over what range of product would each plant be preferred?

Modifications to the productivity before the modifications : What is the percent change in the multifactor productivity comparing the productivity after the modifications to the productivity before the modifications?

Customer the exponential service distribution : The average service time at each service desk is 4 minutes per customer following the exponential service distribution.

Can the company meet customer specification requirements : Can the company meet the customer’s specification requirements at this time? If it cannot, explain if it is due to a drifting of mean or too much variability

User Account

All Pages