If the demand probabilities are 0.4, 0.25, and 0.35, which decision alternative will minimize the expected cost of the data processing operation? Own Staff What is the expected annual cost associated with that recommendation? If required, round your answer to the nearest thousand of dollars. Expected annual cost
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Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows:
| Demand | |||
| Staffing Options | High | Medium | Low |
| Own staff | 600 | 550 | 350 |
| Outside vendor | 900 | 650 | 450 |
| Combination | 700 | 600 | 400 |
a. If the demand probabilities are 0.4, 0.25, and 0.35, which decision alternative will minimize the expected cost of the data processing operation? Own Staff
What is the expected annual cost associated with that recommendation? If required, round your answer to the nearest thousand of dollars. Expected annual cost = $ ___________
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- The Tinkan Company produces one-pound cans for the Canadian salmon industry. Each year the salmon spawn during a 24-hour period and must be canned immediately. Tinkan has the following agreement with the salmon industry. The company can deliver as many cans as it chooses. Then the salmon are caught. For each can by which Tinkan falls short of the salmon industrys needs, the company pays the industry a 2 penalty. Cans cost Tinkan 1 to produce and are sold by Tinkan for 2 per can. If any cans are left over, they are returned to Tinkan and the company reimburses the industry 2 for each extra can. These extra cans are put in storage for next year. Each year a can is held in storage, a carrying cost equal to 20% of the cans production cost is incurred. It is well known that the number of salmon harvested during a year is strongly related to the number of salmon harvested the previous year. In fact, using past data, Tinkan estimates that the harvest size in year t, Ht (measured in the number of cans required), is related to the harvest size in the previous year, Ht1, by the equation Ht = Ht1et where et is normally distributed with mean 1.02 and standard deviation 0.10. Tinkan plans to use the following production strategy. For some value of x, it produces enough cans at the beginning of year t to bring its inventory up to x+Ht, where Ht is the predicted harvest size in year t. Then it delivers these cans to the salmon industry. For example, if it uses x = 100,000, the predicted harvest size is 500,000 cans, and 80,000 cans are already in inventory, then Tinkan produces and delivers 520,000 cans. Given that the harvest size for the previous year was 550,000 cans, use simulation to help Tinkan develop a production strategy that maximizes its expected profit over the next 20 years. Assume that the company begins year 1 with an initial inventory of 300,000 cans.It costs a pharmaceutical company 75,000 to produce a 1000-pound batch of a drug. The average yield from a batch is unknown but the best case is 90% yield (that is, 900 pounds of good drug will be produced), the most likely case is 85% yield, and the worst case is 70% yield. The annual demand for the drug is unknown, with the best case being 20,000 pounds, the most likely case 17,500 pounds, and the worst case 10,000 pounds. The drug sells for 125 per pound and leftover amounts of the drug can be sold for 30 per pound. To maximize annual expected profit, how many batches of the drug should the company produce? You can assume that it will produce the batches only once, before demand for the drug is known.Seas Beginning sells clothing by mail order. An important question is when to strike a customer from the companys mailing list. At present, the company strikes a customer from its mailing list if a customer fails to order from six consecutive catalogs. The company wants to know whether striking a customer from its list after a customer fails to order from four consecutive catalogs results in a higher profit per customer. The following data are available: If a customer placed an order the last time she received a catalog, then there is a 20% chance she will order from the next catalog. If a customer last placed an order one catalog ago, there is a 16% chance she will order from the next catalog she receives. If a customer last placed an order two catalogs ago, there is a 12% chance she will order from the next catalog she receives. If a customer last placed an order three catalogs ago, there is an 8% chance she will order from the next catalog she receives. If a customer last placed an order four catalogs ago, there is a 4% chance she will order from the next catalog she receives. If a customer last placed an order five catalogs ago, there is a 2% chance she will order from the next catalog she receives. It costs 2 to send a catalog, and the average profit per order is 30. Assume a customer has just placed an order. To maximize expected profit per customer, would Seas Beginning make more money canceling such a customer after six nonorders or four nonorders?
- Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. Is Ben Gibson acting legally? Is he acting ethically? Why or why not?Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: Demand Staffing Options High Medium Low Own staff 650 650 600 Outside vendor 900 600 300 Combination 800 650 500 If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data processing operation? What is the expected annual cost associated with that recommendation? Expected annual cost = $fill in the blank 2 Construct a risk profile for the optimal decision in part (a). The input in the box below will not be graded, but may be reviewed and considered by your instructor.
- The owners of Sweet-Tooth Bakery have determined thatthey need to expand their facility in order to meet their increaseddemand for baked goods. Th e decision is whether to expand nowwith a large facility or expand small with the possibility of havingto expand again in fi ve years.Th e owners have estimated the following chances for demand:• Th e likelihood of demand being high is 0.70.• Th e likelihood of demand being low is 0.30.Profi ts for each alternative have been estimated as follows:• Large expansion has an estimated profi tability of either$80,000 or $50,000, depending on whether demand turnsout to be high or low.• Small expansion has a profi tability of $40,000, assumingdemand is low.• Small expansion with an occurrence of high demand wouldrequire considering whether to expand further. If the bakeryexpands at this point, the profi tability is to be $50,000.(a) Draw a decision tree showing the decisions, chanceevents, and their probabilities, as well as the profi tabilityof…Problem 4-07 Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: Demand Staffing Options High Medium Low Own staff 650 650 600 Outside vendor 900 600 300 Combination 800 650 500 If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data processing operation? _______________ (own staff, outside vendor, or combination) What is the expected annual cost associated with that recommendation?Expected annual cost = $________ (fill in the blank) Construct a risk profile for the optimal decision in part (a).The input in the box below will not be graded, but may be…A company is considering two options for supplying a product to three markets, Markets 1, 2, and 3, with uncertain demands. The demand in each of the three markets can be either 50 units (high demand) or 10 units (low demand). The probabilities for Market 1 to have high and low demands are equal to 0.5 and 0.5, respectively. The probabilities for Market 2 to have high and low demands are equal to 0.6 and 0.4, respectively. The probabilities for Market 3 to have high and low demands are equal to 0.25 and 0.75, respectively. With the first supply option, the company will use three local warehouses, one to supply each market (the decentralized strategy). Each local warehouse will keep 28 units of inventory. (Therefore, the total inventory under the first supply option is equal to 84 units.) With the second supply option, the company will use a central warehouse to supply the three markets (the centralized strategy). The central warehouse will keep 84 units of inventory (so that the two…
- A firm that plans to expand its product line must decide whether to build a small or a large facilityto produce the new products. If it builds a small facility and demand is low, the net present valueafter deducting for building costs will be $400,000. If demand is high, the firm can either maintainthe small facility or expand it. Expansion would have a net present value of $450,000, and maintaining the small facility would have a net present value of $50,000.If a large facility is built and demand is high, the estimated net present value is $800,000. If demandturns out to be low, the net present value will be – $10,000.The probability that demand will be high is estimated to be .60, and the probability of low demandis estimated to be .40.a. Analyze using a tree diagram.A firm that plans to expand its product line must decide whether to build a small or a large facilityto produce the new products. If it builds a small facility and demand is low, the net present valueafter deducting for building costs will be $400,000. If demand is high, the firm can either maintainthe small facility or expand it. Expansion would have a net present value of $450,000, and maintaining the small facility would have a net present value of $50,000.If a large facility is built and demand is high, the estimated net present value is $800,000. If demandturns out to be low, the net present value will be – $10,000.The probability that demand will be high is estimated to be .60, and the probability of low demandis estimated to be .40. 1- Compute the EVPI 2- Determine the range over which each alternative would be best in terms of the value of P ( low demand )D’Unique Enterprise, a company that manufactures hair growth oil is preparing for its upcoming financial year (2021). D’Unique’ is seeking a loan from JNT Bank to purchase equipment that will be used to package the oils in anticipation of sales. The loans officer at the bank is requesting the company’s upcoming financial year’s budget to assess their cash position to repay the loan A. Sales/Collection Sales unit in the fourth quarter of 2020 will be 2500 units and is expected to increase by 500 units over each quarter in 2021. Selling price is $60 per unit. All sales are on account. Management expects future sales collection to follow past experiences. Customers pay 60% in the quarter of sales and 40% in the quarter following sales. Accounts receivable for December 31, 2020 is expected to be $60,000. B. Production To reduce the risk of a stock-out or idle time, D’Unique Co. has maintained an ending inventory policy of 20% of the following quarter’s sales unit. C.…
