1,352
4
Essay, 2 pages (300 words)

Project management exercise question

Project management exercise questions Lecturer: Q17-3) Your company has asked you to determine the financial risks of manufacturing 6, 000 units of a product rather than purchasing them from a vendor at $66. 50 per unit. The production line will handle exactly 6, 000 units and requires a one-time setup cost of $50, 000. The production cost is $60/unit. Your manufacturing personnel inform you that some of the units may be defective, as shown below:
% defective     0       1       2       3       4
probability of occurrence (%)   40      30      20      6       4
Defective items must be removed and replaced at the cost of $145/defective unit. However, 100 percent of units purchased from vendors are defect-free. Construct a payoff table, and using the expected-value model, determine the financial risk and whether the make or buy option is best.
Units purchased= 6000
Cost per unit=$66. 50
Set up cost=$50000
6000*66. 50+6000*60+50000= 809000
Nature
Action
0
1
2
3
4
Probability
Production
410000
418700
427400
436100
444800
(0. 4)
164000
41000
1640
32800
174440
177920
0. 3
167480
167480
1674. 80
33496
87220
88960
0. 2
170960
170960
1709. 60
34192
26166
26688
0. 06
174400
174400
1744
34880
17444
17792
0. 04
177920
177920
1779. 20
35584
Total s
697800
697800
8547. 60
170952
= 6000*60= 360000 = 6000*60= 360000 = 6000*60= 360000 = 6000*60= 360000 = 6000*60= 360000
Total Cost = 410000 418700 427400 436100 444800
Expected Cost of manufacturing = 410000*0. 4+418700*0. 3+427400*0. 2 +436100*0. 06 +444800*0. 04
= 419048
Expected cost of manufacturing = 41*0. 4+418700*0. 3+427400*0. 2= 419048
The total cost of manufacturing is $419048, but if the firm buys from a vendor, the total cost would be $809000. The firm should therefore manufacture instead of purchasing the product from vendors. In manufacturing, the firm will be able to save $389952.
Bibliography
Kerzner, H. (2009). Project management: A system Aproach to planning, Scheduling, and Controlling . John Wiley $ Sons .

Thank's for Your Vote!
Project management exercise question. Page 1
Project management exercise question. Page 2
Project management exercise question. Page 3
Project management exercise question. Page 4
Project management exercise question. Page 5

This work, titled "Project management exercise question" was written and willingly shared by a fellow student. This sample can be utilized as a research and reference resource to aid in the writing of your own work. Any use of the work that does not include an appropriate citation is banned.

If you are the owner of this work and don’t want it to be published on AssignBuster, request its removal.

Request Removal
Cite this Essay

References

AssignBuster. (2022) 'Project management exercise question'. 15 September.

Reference

AssignBuster. (2022, September 15). Project management exercise question. Retrieved from https://assignbuster.com/project-management-exercise-question/

References

AssignBuster. 2022. "Project management exercise question." September 15, 2022. https://assignbuster.com/project-management-exercise-question/.

1. AssignBuster. "Project management exercise question." September 15, 2022. https://assignbuster.com/project-management-exercise-question/.


Bibliography


AssignBuster. "Project management exercise question." September 15, 2022. https://assignbuster.com/project-management-exercise-question/.

Work Cited

"Project management exercise question." AssignBuster, 15 Sept. 2022, assignbuster.com/project-management-exercise-question/.

Get in Touch

Please, let us know if you have any ideas on improving Project management exercise question, or our service. We will be happy to hear what you think: [email protected]