Answer Happy

3. Gus Bussman, vice-president for sales and marketing at Bluehuff Products, has assembled his staff to decide on the best production process. On the basis of marketing studies conducted by an outside consulting firm, the annual markets are forecast as shown in Table A. The manufacturing engineers at Bluehuff have identified five different production processes that could be used. The processes vary from labor intensive to capital intensive and have different proportion of the work subcontracted or performed in-house. They estimate that production costs will vary with the production process as follows: Table A- Units Probability 10,000 0.15 20,000 0.30 30,000 0.40 40,000 0.10 50,000 0.05 ANNUAL SALES FORECAST Production Process A B C D E Annualized fixed costs, S 0 25,000 40,000 60,000 100,000 Variable cost, S/unit 5.00 3.25 2.60 2.05 1.60 Which production process should be selected? EVPI?