Operations Management: Processes and Supply Chains, Student Value Edition Plus MyLab Operations Management with Pearson eText -- Access Card Package (11th Edition)
11th Edition
ISBN: 9780134111056
Author: Lee J. Krajewski, Manoj K. Malhotra, Larry P. Ritzman
Publisher: PEARSON
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Chapter 4, Problem 22P
Acme Steel Fabricators experienced booming business for the past 5 years. The company fabricates a wide range of steel products, such as railings, ladders, and light structural steel framing. The current manual method of materials handling is causing excessive inventories and congestion. Acme is considering the purchase of an overhead rail-mounted hoist system or a forklift truck to increase capacity and improve manufacturing efficiency.
The annual pretax payoff from the system depends on future demand. If demand stays at the current level, the probability of which is 0.50, annual savings from the overhead hoist will be $10,000. If demand rises, the hoist will save $25,000 annually because of operating efficiencies in addition to new sales. Finally, if demand falls, the hoist will result in an estimated annual loss of $65,000. The probability is estimated to be 0.30 for higher demand and 0.20 for lower demand.
If the forklift is purchased, annual payoffs will be $5,000 if demand is unchanged, $10,000 if demand rises, and
- Draw a decision tree for this problem and compute the expected value of the payoff for each alternative.
- Which is the best alternative, based on the expected values?
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Chapter 4 Solutions
Operations Management: Processes and Supply Chains, Student Value Edition Plus MyLab Operations Management with Pearson eText -- Access Card Package (11th Edition)
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