Question

Once a product is defined, what documents are used to assist production personnel in its manufacture?. Briefly describe them

MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceeding immediately with production of a new top-of-the-line stereo TV that has just completed prototype testing or (b) having the value analysis team complete a study.

If Ed Lusk, VP for operations, proceeds with the existing prototype (option a), the firm can expect sales to be 100,000 units at $550 each, with a probability of .6, and a .4 probability of 75,000 at $550. If, however, he uses the value analysis team (option b), the firm expects sales of 75,000 units at $750, with a probability of .7, and a .3 probability of 70,000 units at $750. Value analysis, at a cost of $100,000, is only used in option b. Which option has the highest expected monetary value (EMV)?

Answer 1

Option A

Options	investment	sales	unit price	probability	EV= sales*unit price*probability	EMV=Total EV- Investment
A	0	100000	550	0.6	33,000,000
		75000	550	0.4	16,500,000
Total					49,500,000	49,500,000

Option B

Options	investment	sales	unit price	probability	EV= sales*unit price*probability	EMV=Total EV- Investment
B	100000	75000	750	0.7	39,375,000
		70000	750	0.3	15,750,000
Total					55,125,000	55,025,000

Hence, Option B has the highest expected monetary value