A toy manufacturer has three different mechanisms that can be installed in a doll that it sells.
Question:
A toy manufacturer has three different mechanisms that can be installed in a doll that it sells. The different mechanisms have three different setup costs (overheads) and variable costs and, therefore, the profit from the dolls is dependent on the volume of sales. The anticipated payoffs are as follows. Light Demand | Moderate Demand | Heavy Demand | |||
Probability | 0.25 | 0.45 | 0.3 | ||
Wind-up action | $325,000 | $190,000 | $170,000 | ||
Pneumatic action | $300,000 | $420,000 | $400,000 | ||
Electrical action | -$400,000 | $240,000 | $800,000 |
Calculate the expected monetary value for each decision alternative. Which decision yields the highest EMV?
Toy 1 EMV = $205,000; Toy 2 EMV = $164,000; Toy 3 EMV = $228,000; Best Choice is Toy 2
Toy 1 EMV = $215,000; Toy 2 EMV = $264,000; Toy 3 EMV = $328,000; Best Choice is Toy 3
Toy 1 EMV = $217,500; Toy 2 EMV = $384,000; Toy 3 EMV = $248,000; Best Choice is Toy 2
Toy 1 EMV = $288,000; Toy 2 EMV = $364,000; Toy 3 EMV = $228,000; Best Choice is Toy 2
Materials and process in manufacturing
ISBN: 978-0471656531
9th edition
Authors: E. Paul DeGarmo, J T. Black, Ronald A. Kohser