Reference no: EM134035827

Assignment:

Submit a report answering the following questions:

1. Increasing the scale of production often reduces cost. List some practical limits to economies of scale; that is, when should a plant stop growing?
2. What is capacity balance? Why is it hard to achieve? What methods are used to deal with capacity imbalances?
3. What benefits do managers gain from using a decision tree? Will the use of decision tree analysis guarantee the best decision for a firm? Why or why not? If not, why bother using it?
4. Hoosier Manufacturing operates a production shop that is designed to have the lowest unit production cost at an output rate of 100 units per hour. In the month of July, the company operated the production line for a total of 175 hours and produced 16,900 units of output. What was its capacity utilization rate for the month?
5. Expando, Inc., is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $6 million. If demand for new products is low, the company expects to receive $10 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $12 million in discounted revenues using the small facility. The second option is to build a large factory at a cost of $9 million. Were demand to be low, the company would expect $10 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $14 million. In either case, the probability of demand being high is 0.40, and the probability of it being low is 0.60. Not constructing a new factory would result in no additional revenue being generated because the current factories cannot produce these new products. Construct a decision tree to help Expando make the best decision based on the highest Expected Value (EV).