Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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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 the subassemblies.
Transcribed Image Text:Annual Cost for
Decision
5000 Units, $
Alternative
Outcomes
Probability
per Year
1. Make
Plant:
A
0.3
-250,000
B
0.5
-400,000
0.2
- 350,000
2. Buy off Quantity:
the shelf
<5000, pay premium
0.2
-550,000
5000 available
0.7
-250,000
>5000, forced to buy
0.1
-290,000
3. Contract Delivery:
Timely delivery
Late delivery, then
buy some off shelf
0.5
-175,000
0.5
-450,000
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