Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Sox Engineering designs and constructs air conditioning and heating (HVAC) systems for hospitals and clinics. Currently the company's staff is overloaded with design work.
Sox Engineering designs and constructs air conditioning and heating (HVAC) systems for hospitals and clinics. Currently the company's staff is overloaded with design work. There is a major design project due in 8 weeks. The penalty for completing the design late is $13,000 per week, since any delay will cause the facility to open later than anticipated, and cost the client significant revenue. If the company uses its inside engineers to complete the design, it will have to pay them overtime for all work. Sox has estimated that it will cost $10,000 per week (wages and overhead), including late weeks, to have company engineers complete the design. Sox 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 $52,000. Sox would then complete the rest of the design and control systems at an estimated cost of $30,000. Sox 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: Option Probability of Completing the Design Internal Engineers External Engineers On Time 0.4 One Week Late 0.4 Two Weeks Late 0.2 Three Weeks Late 0.1 0.4 0.4 Joint Design 0.1 0.3 0.1 0.1 0.5 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 $(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 Internal engineers O Joint design
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started