Assignment:
An operations manager is deciding on the level of automation for a new process. The fixed cost for automation includes the equipment purchase price, installation, and initial spare parts. The variable costs per unit for each level of automation are primarily labor related. The selling price of each unit is $80. The costs of each alternative are below:
Alternative Fixed Costs Variable Costs per Unit
A $100,000 $58
B $280,000 $39
C $560,000 $21
Based on past sales data, marketing has projected the following probabilities of future demand:
Future Demand Probability
(Units)
5,000 0.20
10,000 0.30
15,000 0.50
What is the expected value of the alternative that you would choose?
Round your answer to the nearest whole number and DO NOT include the $ sign or a comma. For example, answer like 234050 and NOT $234, 050.