During your first month as an employee at

Greenfield Industries (a large drill-bit manufacturer),

you are asked to evaluate alternatives for

producing a newly designed drill bit on a turning

machine. Your boss' memorandum to you has

practically no information about what the alternatives

are and what criteria should be used. The same task

was posed to a previous employee who could not

finish the analysis, but she has given you the following

information:Anold turning machine valued at $350,000

exists (in the warehouse) that can be modified for the

new drill bit. The in-house technicians have given

an estimate of $40,000 to modify this machine, and

they assure you that they will have the machine ready

before the projected start date (although they have

never done any modifications of this type). It is hoped

that the old turning machine will be able to meet

production requirements at full capacity. An outside

company, McDonald Inc., made the machine seven

years ago and can easily do the same modifications

for $60,000. The cooling system used for this machine

is not environmentally safe and would require some

disposal costs. McDonald Inc. has offered to build a new

turning machine with more environmental safeguards

and higher capacity for a price of $450,000. McDonald

Inc. has promised this machine before the startup date

and is willing to pay any late costs. Your company has

$100,000 set aside for the start-up of the new product

line of drill bits. For this situation,

a. Define the problem.

b. List key assumptions.

c. List alternatives facing Greenfield Industries.

d. Select a criterion for evaluation of alternatives.

e. Introduce risk into this situation.

f. Discuss how nonmonetary considerations may

impact the selection.

g. Describe how a postaudit could be performed.