The Toledo Leather Company has been producing leather goods for more than 30 years.  It purchases prepared hides from tanners and produces leather clothing accessories such as wallets, belts, and handbags.  The firm has just developed a new leather product and has prepared a 1-year production and sales plan for it.  The new product is best described as a combination billfold, key case, and credit card carrier.  As company president Peggy Lane has noted, "It is a super carryall for small this-and-that." Lane has placed her administrative assistant, Harold Hamilton, in charge of the project.

Hamilton must decide which of two possible machines to purchase.  Hamilton has narrowed the choice down to two specialized pieces of equipment. Machine 1 is a semi-automated machine that will cut the material to the size needed for one unit and also will sew it, install the rings and snaps, and emboss it with two types of designs.  Machine 2 is fully automated. It cuts, sews, installs rings and snaps, and is capable of embossing the case with three types of designs.  Machine 2 has a higher production capacity (estimated at 800 units per day) than the semi-automated machine.  However, estimated downtime is 25% (1/4^th of the total time), consistent with its great complexity.

prepare a decision tree that could be used when solving this problem.

The following probabilities have been determined by a group of young MBA’s working on their capstone project.

Probability of a Possible Sales Volume of 120,000 = .32

Probability of a Possible Sales Volume of 130,000 = .18

Probability of a Possible Sales Volume of 140,000 = .10

Probability of a Possible Sales Volume of 150,000 = .15

Probability of a Possible Sales Volume of 160,000 = .25

 

Toledo Leather Company Payoff Table/Matrix:

	Sales Volumes (Possible Outcomes)
Alternatives:	120,000 units	130,000 units	140,000 units	150,000 units	160,000 units
Use the Semi-automated Machine	-$10,000	$10,000	$30,000	$38,000	$46,000
Use the Automated Machine	-$20,000	$7,500	$35,000	$62,500	$81,000