JDI, Inc Is Trying to Decide Whether to Make-Or-Buy a Part

question 109

Essay

JDI, Inc. is trying to decide whether to make-or-buy a part (#J-45FPT). Purchasing the part would cost them $1.50 each. If they design and produce it themselves, it will result in a per unit cost of $0.75. However, the design investment would be $50,000. Further, they realize that for this type of part, there is a 30% chance that the part will need to be redesigned at an additional cost of $50,000. Regardless of whether they make-or-buy the part, JDI will need 100,000 of these parts. Using decision trees analysis and EMV, what should JDI do?
Show the decision tree.

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Definitions:

Lateral Geniculate

A part of the thalamus that acts as a primary processing center for visual information received from the retina.

Dentate Gyrus

A part of the hippocampus involved in memory formation, thought to contribute to the generation of new memories.

Internal Carotid Arteries

Major arteries located on either side of the neck that supply blood to the brain, eyes, and parts of the face and scalp.

Vertebral Arteries

Pair of arteries that arise from the subclavian arteries and ascend in the neck to supply blood to the brain and spinal cord.