# BUS 307 Week 2 DQ 2 Expected Values and Decision Trees

Aug 22nd, 2016
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Expected Values and Decision Trees. From the end of Chapter 8, consider the two capacity options for Arktec manufacturing from Problem 2 and the three possible demand scenarios from Problem 4, then complete Problem 5. First, draw the decision tree for Arktec Manufacturing. When drawing your tree, assume that managers must select a capacity option before they know what the demand level will actually be. Then, calculate the expected value for each decision branch. Which option would you prefer and why? Respond to at least two of your classmates’ postings.

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Week 2 DQ 2 Expected Values and Decision TreesFrom the end of Chapter 8, consider the two capacity options for Arktecmanufacturing from Problem 2 and the three possible demand scenarios fromProblem 4, then complete Problem 5. First, draw the decision tree for ArktecManufacturing. When drawing your tree, assume that managers must select acapacity option before they know what the demand level will actually be. Then,calculate the expected value for each decision branch. Which option would youprefer and why? Respond to at least two of your classmates postings.Capacity \$100,000(fixed cost)\$10 (variable cost)Total cost 100,000 + 10(x)100,000 + 10(25,000)=350,000 low100,000 + 10(60,000)=700,000 medium100,000 + 10(100,000)=1,100,000 highEV(350,000 x 30%) + (700,000 x 40%) +(1,100,000 x 30%) = 715,000Capacity\$500,000(fixed cost)\$2 (variable cost)Total cost 500,000 + 2(x)500,000 + 2(25,000)=550,000 low500,000 + 2(60,000)=620,000 medium500,000 + 2(100,000)=700,000 highEV(550,000 x 30%) + (620,000 x 40%) + (700,000 x 30%) =623,00025,000(units) x 30%Demandoutcome\$105,00060,000 (units) x 40%\$280,000EV100,000 (units) x 30%\$ 33

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