(a)        TERBIT Engineering is considering submission of a bid for a contract to provide 25,000 specialized pumps for use in the oil industry.   

There is only one other potential bidder for this contract, CC International, and the lowest bidder will receive the contract. 

TERBIT's bidding decision is complicated by the fact that TERBIT is currently working on a new process to manufacture the pumps.   

If this process works as hoped, then it may substantially lower the cost of making the pumps.  

However, there is some chance that the new process will actually be more expensive than the current manufacturing process.   

Unfortunately, TERBIT will not be able to determine the cost of the new process without actually using it to manufacture the pumps.  

If TERBIT decides to bid, it will make one of three bids: €5,000 per pump, €4,500 per pump, or €4,000 per pump.   

CC International is certain to bid, and it is equally likely that they will bid €6,000, €4,800, or €4,300 per pump. 

If TERBIT decides to bid, then it will cost €1,000,000 to prepare the bid due to the requirement that a prototype pump be included with the bid.   

This €1,000,000 will be totally lost regardless of whether TERBIT wins or loses the bidding competition. 

With TERBIT's current manufacturing process, it is certain to cost €3,400 per pump to make each pump. With the proposed new manufacturing process, there is a 0.20 probability that the manufacturing cost will be €2,400 per pump and a 0.6 probability that the cost will be €2,750 per pump.  Unfortunately, there is also a 0.2 probability that the cost will be €3,900 per pump.

1. Calculate the profit with each of the possible outcomes.                                  
2. Draw a decision tree for TERBIT Engineering’s decision outlined above.                                                                                                                    
3.  Using expected net profit as the decision criterion, determine the preferred course of action for TERBIT Engineering.                                                                

 

2. TERBIT is recruiting a number of new assembly workers.    
3. The Operations manager feels that a steady state times (the learning effect stops) after approximately 1000 assemblies.    
4. Regular assembly line workers are expected to be able to assemble the parts within three minutes.   
5. Two potential recruits are being tested for the job.   
6. David Rich performed the first assembly test in 10 minutes and the second assembly in 8.75 minutes.   
7. Joe Wick took 9 minutes to complete the first assembly test and 8 minutes to complete the second assembly test.   
8. Which potential recruit, if any, will meet the required assembly time standard?