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

question 115

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

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Definitions:

Geocentric Management

An approach to international business that seeks the best people for key jobs throughout an organization, regardless of nationality.

Organizational Behavior

The study of how people interact within groups in a workplace setting and how this behavior affects the performance, operation, and effectiveness of the organization.

Geert Hofstede

A Dutch social psychologist known for his research on cultural dimensions theory, which analyzes cross-cultural communication and differences.

American Management Theories

A set of ideas and practices related to business management that originated in the United States, emphasizing principles of efficiency, leadership, and strategic planning.