Define the problem. b. List key assumptions. c. List alternatives facing Greenfield Industries. d. Select a criterion for evaluation of alternatives. e. Introduce risk into this situation. f. Discuss how nonmonetary considerations may impact the selection. g. Describe how a post audit could be performed.
Problem 1. During your first month as an employee at Greenfield Industries (a large drill-bit
manufacturer), you are asked to evaluate alternatives for producing a newly designed drill bit on a
turning machine. Your boss’ memorandum to you has practically no information about what the
alternatives are and what criteria should be used. The same task was posed to a previous employee
who could not finish the analysis, but she has given you the following information: An old turning
machine valued at $350,000 exists (in the warehouse) that can be modified for the new drill bit.
The in-house technicians have given an estimate of $40,000 to modify this machine, and they assure
you that they will have the machine ready before the projected start date (although they have
never done any modifications of this type). It is hoped that the old turning machine will be able to
meet production requirements at full capacity. An outside company, McDonald Inc., made the
machine seven years ago and can easily do the same modifications for $60,000. The cooling system
used for this machine is not environmentally safe and would require some disposal costs. McDonald
Inc. has offered to build a new turning machine with more environmental safeguards and higher
capacity for a price of $450,000. McDonald Inc. has promised this machine before the start up
date and is willing to pay any late costs. Your company has $100,000 set aside for the start-up of
the new product line of drill bits. For this situation,
a. Define the problem.
b. List key assumptions.
c. List alternatives facing Greenfield Industries.
d. Select a criterion for evaluation of alternatives.
e. Introduce risk into this situation.
f. Discuss how nonmonetary considerations may impact the selection.
g. Describe how a post audit could be performed.
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