The product design group of Iyengar Electric Supplies, Inc., has determined that itneeds to design a new
Question:
The product design group of Iyengar Electric Supplies, Inc., has determined that itneeds to design a new series of switches. It must decide on one of three design strategies.The market forecast is for 200,000 units. The better and more sophis- ticated the designstrategy and the more time spent on value engineering, the less will be the variable cost.The chief of engineering design, Dr. W. L. Berry, has decided that the following costs are agood estimate of the initial and variable costs connected with each of the three strategies:a)Low-tech:A low-technology, low-cost process consisting of hiring several newjunior engineers. This option has a fixed cost of $45,000 and variable-costprobabilities of .3 for $.55 each, .4 for $.50, and .3 for $.45.b)Subcontract:A medium-cost approach using a good outside design staff. Thisapproach would have a fixed cost of $65,000 and variable-cost probabilities of .7 of$.45, .2 of $.40, and .1 of $.35.c)High-tech:Ahigh-technologyapproachusingtheverybestofthe inside staff and thelatest computer-aided design technology. This approach has a fixed cost of $75,000and variable-cost probabili- ties of .9 of $.40 and .1 of $.35