When manufacturing PC boards is it better to manufacture all at once or split it up, business & finance homework help

Anonymous
timer Asked: Jul 28th, 2017
account_balance_wallet $10

Question Description

Must be 3-4 Pages APA style.

BUYU Manufacturing has been contracted to provide SAEL Electronics with printed circuit and motherboards (PC) boards under the following terms:

  • 100,000 PC boards will be delivered to SAEL in one month.
  • In 3 months, SAEL has an option to take the delivery of an additional 100,000 boards by giving BUYU a 30-day notice.
  • SAEL will pay $5 for each board it takes.

BUYU manufactures the PC boards through a process called batching, and manufacturing costs are as follows:

  • The manufacturing batch run has a fixed setup cost of $250,000, regardless of the run size.
  • The marginal manufacturing cost is $2.00 per board, regardless of the size of the batch run.

BUYU must decide whether it should manufacture all 200,000 PC boards now, or if it should manufacture 100,000 now and the other 100,000 boards only if SAEL decides to buy them. If BUYU manufactures 200,000 now and SAEL does not exercise its option, then BUYU will lose the manufacturing cost of the extra 100,000 boards. BUYU believes that there is a 50% chance that SAEL will exercise its option to buy the additional 100,000 PC boards.

  1. Discuss the potential profit of manufacturing all 200,000 boards now.
  2. Draw a decision tree for the decision that BUYU faces.
  3. If BUYU uses its expected profit as the basis for its decision, determine the preferred course of action.
  4. Determine the range of values of the probability that SAEL will exercise its option, making the decision found in part c as optimal, and determine the expected value of perfect information about whether SAEL will exercise its option.
  5. Assume now that BUYU is constantly risk averse with a risk tolerance of $100,000, and answer parts 3 and 4 again.

Tutor Answer

Chucks574
School: UCLA

Thank you.

Running Head: BUYU Decision Making Process

BUYU Decision Making Process:
Name:
Institution affiliation:
Date:

1

BUYU Decision Making Process

2

Terms
Manufacturing of motherboards as well as printed circuit is the agreement between SAEL
& BUYU. The terms of the agreement are that within one month, 100,000 PC boards will be
delivered to SAEL and SAEL has the option to give BUYU a thirty day notice to deliver
additional 100,000 motherboards in 3 months. For each motherboard that SAEL takes it will pay
$5.00.
For BUYU to be able to make a profit, it will employ the batching method. In this
method an initial setup determines the fixed setup that will be utilized no matter how many
batches are being run. This implies that the cost will remain constant no matter the
circumsta...

flag Report DMCA
Review

Anonymous
awesome work thanks

Similar Questions
Related Tags

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors