A total of 5000 mechanical subassemblies are needed annually on a final assembly line. The subassemblies can be obtained in one of three ways: (1) Make them in one of three plants owned by the company; (2) buy them off the shelf from the one and only manufacturer; or (3) contract to have them made to specifications by a vendor.

The estimated annual equivalent cost for each alternative is dependent upon specific circumstances of the plant, producer, or contractor. The information shown details the circumstance, a probability of occurrence, and the estimated annual cost.

Construct and solve a decision tree to determine the least-cost alternative to provide thesubassemblies.

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Decision Alternative Annual Cost for 5000 Units, S per Year Outcomes Probability 1. Make Plant 0.3 0.5 0.2 -250,000 -400,000 -350,000 2. By off Quantity the shelf <5000, pay premium 5000 available >5000, forced to buy 0.2 0.7 0.1 -550,000 -250,000 -290.000 3. Contract Delivery: Timely delivery Late delivery, then 0.5 0.5 -175,000 -450,000 buy some off shelf