Tri-Products Is Trying to Decide Whether to Make-Or-Buy an Accessory

question 120

Essay

Tri-products is trying to decide whether to make-or-buy an accessory item for one of their products. It is projected that this item will sell for $10 each. If the item is outsourced, there is virtually no cost other than the $6 per unit that they would pay their supplier. Internally, they have two choices. Process A requires an investment of $120,000 for design and equipment, but results in a $4 per unit cost. Process B requires only a $100,000 investment, but its per unit cost is $5. Regardless of whether the item is subcontracted or produced internally, there is a 50% chance that they will sell 50,000 units, and a 50% chance that they will sell 100,000 units. Draw the decision tree appropriate to the alternatives and outcomes stated. Using decision trees and EMV, what is their best choice?

Grasp the significance of social responsibility and its different levels in business operations.

Appreciate the value of mission statements and codes of ethics in guiding business practices and decisions.

Understand the impact of economic, legal/regulatory, and technological environments on business operations and strategies.

Understand the historical primary role of business in an economic context.

---

Definitions:

Ontogenetic

Pertaining to the development of an individual organism or individual anatomical or behavioral characteristic from conception to maturity.

Monozygotic

Referring to twins developed from a single fertilized ovum, hence they are genetically identical.

Codominant

A genetic scenario in which two alleles of a gene are expressed equally in the phenotype of heterozygotes.

Heterozygous Individual

A heterozygous individual possesses two different alleles of a gene for a particular trait, resulting in genetic variation.