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A manufacturing company currently employs 50 workers. It takes a worker an hour to make a unit and workers are paid $20/hour. The material cost
A manufacturing company currently employs 50 workers. It takes a worker an hour to make a unit and workers are paid $20/hour. The material cost is $5/unit. Each worker works 160 hours/week to meet the current monthly demand of 8,000 units. Due to the change of economy, the manufacturing company predicted that the demand has 60% chance of increasing 50% from the previous month and 40% chance of remaining the same for the next three months. The company is considering two options: hiring additional workers at a $1,000 fixed cost (administration and benefit) per month in addition to the hourly labor cost. The company can possibly use subcontracting from a plant China. The cost of subcontracting is 180/unit ($1=6) including material cost. In addition, the exchange rate yuan can go up (the value of yuan increases) by 20% with 80% of change or go down (the value of yuan decreases) by 10% with 20% of chance for the next three months. The yearly discount rate is 12% which means 1% per month. Assume all costs re incurred at the beginning of the period. For example, if the demand for next month is higher, the cost of either hiring additional worker of subcontracting should happen at the current time.
A) Please help this company draw the decision tree clearly.
B) Which option is better.
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