1.Using expected value, is it economically better to make or buy the component? Strategically thinking, why might management opt for other than the most economical choice?

Teloxy Engineering has received a one-time contract to design and build 10,000 units of a new product. During the proposal process, management felt that the new product could be designed and manufactured at a low cost. One of the ingredients necessary to build the product was a small component that could be purchased for $60 in the marketplace, including quantity dis- counts. Accordingly, management budgeted $650,000 for the purchasing and handling of 10,000 components plus scrap. 

During the design stage, your engineering team informs you that the final design will require a somewhat higher-grade component that sells for $72 with quantity discounts. The new price is substantially higher than you had budgeted for. This will create a cost overrun. 

You meet with your manufacturing team to see if they can manufacture the component at a cheaper price than buying it from the outside. Your manufacturing team informs you that they can produce a maximum of 10,000 units, just enough to fulfill your contract. The setup cost will be $100,000 and the raw material cost is $40 per component. Since Teloxy has never manu- factured this product before, manufacturing expects the following defects: 

Percent defective 0 10 20 30 40 Probability of 10 20 30 25 15 

occurrence
All defective parts must be removed and repaired at a cost of $120 per part. 

  1. Using expected value, is it economically better to make or buy the component?
     
  2. Strategically thinking, why might management opt for other than the most economical
    choice?

Just in case you need an assignment done, hire us. Using our writing services will make your life easier because we deliver exceptional results. Use us to get an A!

We are the Best!

course-preview

275 words per page

You essay will be 275 words per page. Tell your writer how many words you need, or the pages.


12 pt Times New Roman

Unless otherwise stated, we use 12pt Arial/Times New Roman as the font for your paper.


Double line spacing

Your essay will have double spaced text. View our sample essays.


Any citation style

APA, MLA, Chicago/Turabian, Harvard, our writers are experts at formatting.


We Accept

Secure Payment
Image 3