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:

Oxygen Dissociation Curve

A graph displaying the relationship between the saturation of hemoglobin with oxygen and the partial pressure of oxygen in the blood.

Percent Saturation

A measure of the degree to which a substance is saturated, expressed as a percentage of the maximum possible saturation under given conditions.

Partial Pressure

The pressure exerted by a single gas component in a mixture of gases.

Agglutination Reactions

The clumping of particles or cells, typically red blood cells, in response to antibodies, often used in blood typing.