Question: Problem 5.11 (page 181 in the text)

a. The product design group has determined that it needs to design a new series of switches. It must decide on one of three. The market forecast is for 200,00 units. The better and more sophisticated the design strategy and the more time spent on value engineering, the less will be the variable cost. The chief of engineering disen has decided that the following costs are a good estimate of the initial and variable costs connected with each three strategies.

i. Low-Tech- low technology, low cost process consisting of hiring several new junior engineers. This option has a fixed cost of $45000 and variable cost probabilities of 3 for $55 each, .4 for $.50, and ,3 for $.45

ii. Subcontract: A medium cost approach using a good outside design staff. This approach would have a fixed cost of $65,000 and a variable cost probabilities of .7 of $.45, .2 of $.40 and .1 of $.35

iii. High Tech- high tech approach using the very best of the inside staff and the latest computer aided design technology. This approach has a fixed cost of $75,00 and variable cost probabilities of .9 of $.40 and .1 of $.35

b. What is the best decision based on an expected monetary value criterion.