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Martin's Supply company has given an opportunity to become a permanent supplier by a major automobile company in Chicago. Currently the supply company's staffs are
Martin's Supply company has given an opportunity to become a permanent supplier by a major automobile company in Chicago. Currently the supply company's staffs are overloaded with design and development work due to strong demand in alternative fuel based automobiles. A new product is due in 8 months. The penalty for completing the design late is $15,000 per month, since any delay will cause the automobile company to open later and cost the automobile company significant revenue. If Martin uses its inside engineers to complete the design, it will have to pay them overtime for all work. Martin has estimated that it will cost $12,000 per month (wages and overhead), including late months, to have company engineers complete the design Martin is also considering having an outside engineering firm do the design. A bid of $82,000 has been received for the completed design. Yet another option for completing the design is to conduct a joint design by having a third engineering company complete all electromechanical components of the design at a cost of $56,000. Martin would then complete the rest of the design and control systems at an estimated cost of $30,000. Martin has estimated the following probabilities of completing the project within various time frames when using each of the three options. Those estimates are shown in the following table: Probability of Completing the Design Option Internal Engineers External Engineers Joint Design On Time One month late 0.3 0.4 0.2 04 0.1 0.2 Two months late Three months late 0.3 0.2 0.2 0.5 0.2 The expected monetary value using inside engineers to complete the design is $ (Enter your response as an integer)) The expected monetary value using an outside engineering firm to complete the design is S (Enter your response as an integer) The expected monetary value of conducting a joint design is $ (Enter your response as an integer) What is the best decision based on an expected monetary value criterion? O External engineering firm O Joint design O Internal engineers
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