Please help me make a decision tree for the following attached document.Amalgamated Electric is contemplating production of a new programmable controller. Market
analysts estimate total sales over the life of the design to be $75,000,000 given high demand and
about $40,000,000 should demand prove to be low. The management of Amalgamated Electric
has indicated that the programmable controller will be produced only if it is profitable to do so,
considering all costs. Sales variability is a significant concern; the marketing manager estimates
that the probability of high demand is only about 0.45.
Identifying suitable production facilities is a primary factor in deciding whether to produce the
controller. Presently, all Amalgamated Electric facilities are near full capacity, necessitating
additional production capacity if the controller is to be produced. The operations manager is
considering an expansion of the St. Louis facility at a cost of $8,000,000 or the erection of a new
facility at a cost of $12,000,000. However, the location of the facility has a significant impact on
production costs.
If a new plant is erected in the North, higher tax rates and union labor will bring production costs
around $80,000,000. Alternately, production costs for a new facility in the South would be
$50,000,000. A wild card option is to site a plant in Southeast Asia, where production costs are
estimated at $25,000,000. If the St. Louis facility is expanded, production costs are estimated at
$28,000,000, since some slack capacity exists there.
Given this information, make a recommendation, and support your recommendation with a
decision tree.
This question was answered on: Sep 21, 2023
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