As operations manager of Holz Furniture, you must make a decision about adding a line of rustic furniture. In discussing the possibilities with your sales manager, Steve Gilbert, you decide that there will definitely be a market and that your firm should enter that market. However, because rustic furniture has a different finish than your standard offering, you decide you need another process line. There is no doubt in your mind about the decision, and you are sure that you should have a second process. But you do question how large to make it. A large process line is going to cost $400,000; a small process line will cost $325,000. The question, therefore, is the demand for rustic furniture. After extensive discussion with Mr. Gilbert and Rosalita Ferrera of Ferrera Market Research, Inc., you determine that the best estimate you can make is that there is a two-out-of-three chance of high demand resulting in $650,000 profit from sales and a one-out-of-three chance of low demand resulting in $300,000 profit from sales. With a large process line, you could handle the high figure of $650,000. However, with a small process line you could not and would be forced to expand (at a cost of $175,000), after which time your profit from sales would be $500,000 rather than the $650,000 because of the lost time in expanding the process. If you do not expand the small process, your profit from sales would be held to $450,000. If you build a small process and the demand is low, you can handle all of the demand. The best option is to open a whole number). with an expected value of $ (round your response to the nearest
As operations manager of Holz Furniture, you must make a decision about adding a line of rustic furniture. In discussing the possibilities with your sales manager, Steve Gilbert, you decide that there will definitely be a market and that your firm should enter that market. However, because rustic furniture has a different finish than your standard offering, you decide you need another process line. There is no doubt in your mind about the decision, and you are sure that you should have a second process. But you do question how large to make it. A large process line is going to cost $400,000; a small process line will cost $325,000. The question, therefore, is the demand for rustic furniture. After extensive discussion with Mr. Gilbert and Rosalita Ferrera of Ferrera Market Research, Inc., you determine that the best estimate you can make is that there is a two-out-of-three chance of high demand resulting in $650,000 profit from sales and a one-out-of-three chance of low demand resulting in $300,000 profit from sales. With a large process line, you could handle the high figure of $650,000. However, with a small process line you could not and would be forced to expand (at a cost of $175,000), after which time your profit from sales would be $500,000 rather than the $650,000 because of the lost time in expanding the process. If you do not expand the small process, your profit from sales would be held to $450,000. If you build a small process and the demand is low, you can handle all of the demand. The best option is to open a whole number). with an expected value of $ (round your response to the nearest
College Algebra (MindTap Course List)
12th Edition
ISBN:9781305652231
Author:R. David Gustafson, Jeff Hughes
Publisher:R. David Gustafson, Jeff Hughes
Chapter8: Sequences, Series, And Probability
Section8.CT: Chapter Test
Problem 21CT: How many ways can 4 men and 4 women stand in line if all the women are first?
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Question
Transcribed Image Text:As operations manager of Holz Furniture, you must make a decision about adding a line of rustic furniture. In
discussing the possibilities with your sales manager, Steve Gilbert, you decide that there will definitely be a market
and that your firm should enter that market. However, because rustic furniture has a different finish than your
standard offering, you decide you need another process line. There is no doubt in your mind about the decision, and
you are sure that you should have a second process. But you do question how large to make it. A large process line is
going to cost $400,000; a small process line will cost $325,000. The question, therefore, is the demand for rustic
furniture. After extensive discussion with Mr. Gilbert and Rosalita Ferrera of Ferrera Market Research, Inc., you
determine that the best estimate you can make is that there is a two-out-of-three chance of high demand resulting in
$650,000 profit from sales and a one-out-of-three chance of low demand resulting in $300,000 profit from sales.
With a large process line, you could handle the high figure of $650,000. However, with a small process line you could
not and would be forced to expand (at a cost of $175,000), after which time your profit from sales would be $500,000
rather than the $650,000 because of the lost time in expanding the process. If you do not expand the small process,
your profit from sales would be held to $450,000. If you build a small process and the demand is low, you can handle
all of the demand.
The best option is to open a
whole number).
with an expected value of $
(round your response to the nearest
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