MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceedin

Question

MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceeding immediately with production of a new top-of-the-line stereo TV that has just completed prototype testing or (b) having the value analysis team complete a study. If Ed Lusk, VP for operations, proceeds with the existing prototype (option a), the firm can expect sales to be 80,000 units at $500 each, with a probability of 0.39 and a 0.61 probability of 60,000 at $500. If, however, he uses the value analysis team (option b), the firm expects sales of 90,000 units at $760, with a probability of 0.68 and a 0.32 probability of 70,000 units at $760. Value engineering, at a cost of $115,000, is only used in option b. Which option has the highest expected monetary value (EMV)? The EMV for option ass and he EMV for option bisS Therefore, option has the highest expected monetary value. Enter your responses as tegers

Explanation / Answer

a) EMV for option a = Sales*Price*Probability1 + Sales*Price*probability2

= 80000*500*.39 + 60000*500*.61

= 15600000 + 18300000

= 33900000 $

b) EMV for option a = Sales*Price*Probability1 + Sales*Price*probability2

= 90000*760*.68 + 70000*760*.32

= 46512000 + 17024000

= 63536000 $

Therefore option b has the highest monetary value.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.