Asked by Erika Frederick on Jun 24, 2024
Verified
Use the information from Scenario 6.1 to determine the expected cost of operating a small facility for a period of two years.
A) $1,102,500
B) $1,005,500
C) $502,500
D) $2,205,000
Expected Cost
The anticipated or forecasted cost of an action, project, or product, taking into account all relevant factors and potential risks, used for budgeting and financial planning.
Small Facility
Refers to a building or area that is smaller in size, used for a specific purpose, such as manufacturing or storage.
Operating Costs
Expenses related to the day-to-day functioning of a business, excluding costs associated with production or acquisition of goods.
- Pinpoint the most efficient supply chain arrangements amidst fluctuating demand levels.
Verified Answer
TS
Tineshwary ShanmugavelJun 29, 2024
Final Answer :
B
Explanation :
To determine the expected cost of operating a small facility for a period of two years:
Expected cost = (probability of high demand * cost of operating a small facility at high demand) + (probability of low demand * cost of operating a small facility at low demand)
Expected cost = (0.7 * $600,000) + (0.3 * $275,000)
Expected cost = $420,000 + $82,500
Expected cost = $502,500
Therefore, the expected cost of operating a small facility for a period of two years is $502,500.
The best choice is to construct the small facility, as it has a lower initial cost and the expected operating cost is lower compared to the large facility.
Expected cost = (probability of high demand * cost of operating a small facility at high demand) + (probability of low demand * cost of operating a small facility at low demand)
Expected cost = (0.7 * $600,000) + (0.3 * $275,000)
Expected cost = $420,000 + $82,500
Expected cost = $502,500
Therefore, the expected cost of operating a small facility for a period of two years is $502,500.
The best choice is to construct the small facility, as it has a lower initial cost and the expected operating cost is lower compared to the large facility.
Learning Objectives
- Pinpoint the most efficient supply chain arrangements amidst fluctuating demand levels.