Tri-Products Is Trying to Decide Whether to Make or Buy

question 114

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 it 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 the decision tree and EMV, what is their best choice?

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Definitions:

Moral Development

The process through which individuals learn and apply concepts of right and wrong behavior, guided by cultural, social, and ethical norms.

Ethical Issue

A situation or problem that requires individuals or organizations to choose between alternatives that must be evaluated as right or wrong (ethical or unethical).

Cheating

The act of being dishonest, breaking rules, or using deceptive means to gain an unfair advantage, typically within an academic or competitive setting.

Situational

Relating to or dependent upon a specific set of circumstances or context.