Expected Monetary Value For Both Performing The Test And Not Performing The Test 2561794

Scenario: 500 units of a product are being manufactured and the question to be answered is whether or not to perform a particular test on those units before shipping. The test costs $10,000 per unit to perform. The cost not to perform the test is $0 per unit, but if a unit fails in the field then it will have to be fixed in the field, which has a cost of $350,000 per unit.
If the units are tested, for the units that pass the test, there is now an additional cost of re-readying the units for delivery of $2,000 per unit. For the units that fail the test, there is now an additional cost of fixing the units, as well as re-readying them for delivery, of $23,000 total per unit.
Historically you know and can count on the fact that 96% of your products will pass the testing. The same pass/fail rate for testing applies to the pass/fail rate observed in the field.
What is the Expected Monetary Value for both performing the test and not performing the test? Which choice should be made? Fill in the values/calculations requested by the lines tagged with “answer here”.
I have filled in the calculations/values under the Decision portion of the decision tree to show you what your submitted answers should look like. Please feel free to add your answers to the power point slide and submit that, or you may print the page and hand write your answers in. If you choose to hand write your answers in, make sure that your answers and the scan are legible to receive credit.

Attachments:

Decision-Tree….pptx

Prof. Angela

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