Properly label the decision tree for the churner decision

Assignment Help Operation Management

Reference no: EM132113894

HCYE has been in the yogurt business for a couple of years now. In the past annual financial period they sold 14,400 pounds of yogurt. By converting everything to pounds they have determined that they buy the yogurt for $3.00 per pound and sell it for $7.00 per pound.

Although they have been quite successful they are now considering purchasing a yogurt churner that will allow them to make their own yogurt. This churner is capable of producing 40,000 pounds of yogurt per year. By making the yogurt themselves HCYE can reduce their yogurt costs to $1.60 per pound. HCYE also knows that there is considerable cost related to the churner such as fixed costs for training, lease, etc. that will run about $35,000 per year.

This churner will be able to produce significantly more than the 14,400 pounds that they currently sell on Campus. After evaluating some options HCYE feels they can sell some of their yogurt to other local shops for $2.90 per pound. HCYE has calculated the three demand possibilities all of which have an equal probability of occurring:

Low Demand 18,000 pounds per year (includes the 14,400 pounds for campus)

Medium Demand 25,000 pounds per year (includes the 14,400 pounds for campus)

High Demand 35,000 pounds per year (includes the 14,400 pounds for campus)

1. What are the two capacity options that HCYE needs to consider?

2. What are the fixed and variable costs for each?

3. What is the indifference point for the two options?

4. What are the implications for the indifference point?

5. Draw and properly label the Decision Tree for the churner decision.

6. If HCYE does not invest in the churner do they need to concern themselves with the different demand scenarios shown above? Why or Why not? Explain.

7. Calculate the expected value for the two capacity options. Don’t forget that for the churner option any demand above 14,400 pounds will generate revenues of only $2.90 per pound.

8. Update the Decision Tree to include these new results.

9. What is the worst AND best possible financial outcome for HCYE?

10. What other factors such as core competency, strategic flexibility, etc. should HCYE consider when making this decision?

Reference no: EM132113894

Questions Cloud

Determine how to minimize the net cost incurred : Determine how to minimize the net cost incurred in meeting the demands for the next four months.

Benefit from strategic business analysis : Explain why you think Motorola as a company would benefit from a strategic business analysis

Explain the linear relationship of two variables : Which of these following statistical techniques can explain the linear relationship of two variables?

Scope and procedure of oral depostions : Write a brief outline on the definition, purpose, scope, and procedure of ORAL DEPOSTIONS.

Properly label the decision tree for the churner decision : What are the two capacity options that HCYE needs to consider? Draw and properly label the Decision Tree for the churner decision.

Details the operations that suggest supply chain performance : Discuss in details the operations that suggest supply chain performance.

Modeling by employers impact employee attire in workplace : How does behavior modeling by employers impact employee attire in the workplace? Is employee salary responsible for appropriate and/or inappropriate workplace

Using social technology to reach out to their students : How teachers are using social technology (Facebook, Blogs, etc.), to reach out to their students and its effectiveness on learning.

Does your culture affect the way you see things : Where does culture come from? Does your culture affect the way you see things? How?

User Account

All Pages