Risk and probability- please help
Submitted by peter8804 on Wed, 06/12/2013 - 23:51
Does anyone know how to solve these questions, expecially question A (2) and B (2) (3)?
TELOXY ENGINEERING (A)
Teloxy Engineering has received a onetime contract to design and build 10,000 units of a new
product. During the proposal process, management felt that the new product could be designed
and manufactured at a low cost. One of the ingredients necessary to build the product was a
small component that could be purchased for $60 in the market, including quantity discounts.
Accordingly, management budgeted $650,000 for the purchasing and handling of 10,000
components plus scrap.
During the design stage, your engineering team informs you that the final design will require a
somewhat higher grade component that sells for $72 with quantity discounts. The new price is
substantially higher than you had budgeted for. This will create a cost overrun.
You meet with your manufacturing team to see if they can manufacture the component at a
cheaper price than buying it from outside. Your manufacturing team informs you
that they can produce a maximum of 10,000 units, just enough to fulfill your contract. The setup
cost will be $100,000 and the raw material cost is $40 per component. Since Telo has never
manufactured this product before, manufacturing expects the following defects:
% Defective 0 10 20 30 40
% Probability of occurrence 10 20 30 25 15
All defective parts must be removed and repaired at a cost of $120 per part.
Questions
1. Using expected value, is it economically better to make or buy the component?
2. Strategically thinking, why might management opt for other than the most economical
choice?
TELOXY ENGINEERING (B)
Your manufacturing team informs you that they have found a way to increase the size of the
manufacturing run from 10,000 to 18,000 units, in increments of 2,000 units. However, the setup
cost will be $150,000 and defects will cost the same $120 for removal and repair.
Questions
a. Calculate the economic feasibility of make or buy.
b. Should the probability of defects change if we produce 18,000 units as opposed to
10,000 units?
c. Would your answer to Question 1 change, if Telo management believes that follow-on
contracts will be forthcoming? What would happen if the probability of defects changes
to 15 %, 25 %, 40%, 15%, and 5% due to learning-curve efficiencies?
Forums:
admin
Fri, 06/14/2013 - 01:52
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These are not PMP like
These are not PMP like questions, hence move on.
sanskrit
Fri, 06/14/2013 - 02:14
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:)
:)
cnppmp
Fri, 06/14/2013 - 02:51
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Lot of effort is put in to
Lot of effort is put in to build this question than considering the limited time frame of answering question in PMP real exam(70 secs /questions we have).
Regards
CNP
peter8804
Sun, 06/16/2013 - 23:55
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answer
Dear CNP,
Can you give me direction as to how to answer these questions?
Regards,
Peter.