XYZ Company faces a typical “make or buy decision”. On one hand, XYZ could produce the Blender for Smoothies itself. Cost estimates in this case are as follows:

Alternative: Make Blender for Smoothie
Cost per Unit ($)	Chance (%)
35.00	25
42.50	25
45.00	37
49.00	13

The company also could have the blender made by a subcontractor. The subcontractor, however, faces similar uncertainties regarding the costs and has provided XYZ Company with the following schedule of costs and chances:

Alternative: Buy Blender for Smoothie
Cost per Unit ($)	Chance (%)
37.00	10
43.00	40
46.00	30
50.00	20

If XYZ Company wants to minimize its expected cost of production in this case should it make or buy?

a. Draw and solve the decision tree for the given problem to support your recommendation.

b. Construct cumulative risk profiles for all possible strategies on one graph. Can you draw any conclusions regarding dominance? Explain

 

Answer rating: 100% (QA)

Answer To solve this make or buy decision problem for XYZ Company well create a decision tree and construct cumulative risk profiles for both alternat... View the full answer