Question
AccuTest is manufacturing automated blood pressure devices intended to use at home. At present, they have a very succssful product line called TrueTense, which they
AccuTest is manufacturing automated blood pressure devices intended to use at home. At present, they have a very succssful product line called TrueTense, which they currenly manufacture at the cost of $120 per device. Utilizing latest technologes such as IoT (internet of things), wearable electronics, andusing advanced software, their preliminary research identified two potential new products.
AccuTest has limited engineering resrouces and given initial estimates they can effectively focus on only one of the three possible design alternatives in order to launch their product by the end of this year.
If they choose to improve TrueTense with new technolgy, they estimate that their cost per device will be reduced to $105 and the cost of development is estimated at $200,000. In the event that the marketing campaign for improved TrueTense is succesful projected annual demand is 90,000 units. However, if the market does not respond well to the upgraded produt, the demand is projected to be 30,000 units per year.
WebTense is one of their new proposed products, which could be outsourced for a cost of $80 and if the marketing campaign is a success projected demand is 80,000 devices per year. If the market campaign fails, projected annual demand is 45,000 units. The development cost is estimated to be $350,000.
Another option is to develop ArmTense, a wearable device, which they would produce in house for a projected cost of $90 per unit at development cost of $250,000. If the marketing campaign is a success, projected demand is 70,000 units. Alternatively, unsuccessful marketing campaign projects the demand at 60,000 units per year.
Finally, given their historical performance, marketing department estimates that there is a 80% likelihood that they will be successfulin marketing any of the AccuTest product alternatives.
AccuTest will make their decision based on minimized total cost calculated from projected demand, unit cost and product development cost.
Prompt:
- Completethe following decision table for Optimistic, Pessimistic and Expected Value Criterion (Note: Round all numbers to thousands without decimal places and without $ sign).
- Once you complete the table enter the appropriate decision alternativenumberin the space provided for each criterion (Note: Do not type any characters other than ONE of the three decision alternative numbers!):
Enter:1for Improved TrueTense
Enter:2for WebTense, or
Enter:3for ArmTense
Alternatives | States of Nature (Total Cost in thousands $'s) | Optimistic | Pessimistic | Expected Value | |
Market Success | Market Failure | ||||
(1) ImprovedTrueTense | |||||
(2) NewWebTense | |||||
(3) NewArmTense |
- Using Optimistic Criterion Only, AccuTest should chose decision alternative ________
- Using Pessimistic Criterion Only, AccuTest should chose decision alternative ________
- Using Expected Value Criterion Only, AccuTest should chose decision alternative _________
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