Uncertainty and expected costs. Dawmart Corp., an international retail giant, is considering implementing a new business-to-business (B2B) information system for processing purchase orders. The current system costs Dawmart $1,000,000 per month and $40 per order.
Dawmart has two options: a partially automated B2B and a fully automated B2B system. The partially automated B2B system will have a fixed cost of $5,000,000 per month and a variable cost of $30 per order. The fully automated B2B system will have fixed costs of $10,000,000 per month and variable costs of $20 per order.
Based on data from the last two years, Dawmart has determined the following distribution on monthly orders:
Monthly Number of Orders Probability
300,000 ..... 0.10
400,000 ..... 0.25
500,000 ..... 0.40
600,000 ..... 0.15
700,000 ..... 0.10
1. Prepare a table showing the cost of each plan for each quantity of monthly orders.
2. What is the expected cost of each plan?
3. In addition to the information systems costs, what other factors should Dawmart consider before deciding to implement a new B2B system?

  • CreatedJuly 31, 2015
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