Saudi company for the production of soap wants to create a factory

Question: Q1: Saudi company for the production of soap wants…

 

Q1: Saudi company for the production of soap wants to create a factory, if provided with three alternatives for the establishment of the

Plant in three cities:

1- . Create a small factory in Al-Kharj production capacity amounting / 100 / thousand units annually and fixed cost estimates /$ 50

Thousand and the variable cost estimates /$2.5/ per unit.

2- Set up medium factory in Riyadh production capacity amounting / 200 / thousand units per year and fixed cost estimates / $80 thousand /

And the variable cost estimates /$3.1/ per unit.

3- . Create a large factory in Hail production capacity amounting / 300 thousand units annually and fixed cost estimates / $120 thousand /

And the variable cost estimates /$3.6/ per unit.

And you have the following information:

1- The production of each factory is constant, (the production levels does not vary with demand)

2- The unit that are not sold according to demand, it price becomes zero

3- . The demand is expected / 60 /, / 85 /, / 133 /, thousand units respectively, with probability 25%, 40%, 35% respectively.

4- Selling price per unit = $ 12

The required:

A – Identify a group of possible alternatives and a group of states of nature

B – Build a table of results (profits).

C – Determine the optimal alternative using E-MV.

D – By Using a decision Tree, what is your decision?

E- Calculate the EVPE? And explain what it means?

F- Suppose that the probability of the occurring the state of nature are unknown, use the suitable method to evaluate the alternative,

What is your decision?