Question

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. The selling price of each unit is $105. The costs of each alternative are below:

Alternative	Fixed Costs	Variable Costs per Unit
A	$100,000	$54
B	$280,000	$37
C	$560,000	$22

Based on past sales data, marketing has projected the following probabilities of future demand. These apply no matter which alternative is chosen.

Future Demand (units)	Probability
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 it easier to calculate out the decision tree of all the possible expected values. Also, there is a video clarifying this problem in Moodle.)

Round your answer to the nearest whole number and DO NOT include the $ sign or a comma. For example, answer like 234050 and NOT $234,050.

Answer 1

1150D rpectid valuu $ 486,SOD ニ11500X105-980000-37x1150。

- Il sooXI05-560000 ISOD 31oD hos to be chasen value Bニ丰502,000