Quantitative Analysis Avalanche

In: Business and Management

Submitted By occurmeetjia
Words 1343
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Avalanche Corporation Bayesian Analysis Case


Question 1. Determine the break-even volume for the two production options(bath and line)

Suppose the break-even volume should be x units
total cost for batch flow production equals 475,000+ 75x
total cost for line flow production equals 900,000+60x
if 475,000+75x = 900,000+60x , we will have x= 28,334 units.

if more than 28,334 units are produced, the cost of batch flow production will be higher than that of line flow production, and the line production should be used; otherwise, when the volume is lower than 28,334 units, the batch flow production should be used.

Question 2. Determine the net income for each of the six demand and production options

2a. Draw an appropriate decision tree.
Please refer to the lower half of the decision-tree hardcopy handout. Thanks

2b. To maximize the expected value, what is the production decision .

There are three production levels:
A. 15,000 units
B. 30,000 units
C. 40,000 units
From Question 1 we know that the break-even volume is 28,334 units. Therefore, for option A, batch flow production is adopted; while for option B and C, line production method is adopted.
And there are two sales forecast scenarios for Avalanche Racer:
a) 35,000 units with probability of 0.6
b) 25,000 units with probability of 0.4.

Other factors include the selling price of Avalanche Racer is $125, and if and only if demand exceeds production, an outside vendor Snowcap is capable of producing for a cost of $ 75 per unit. Unsold units could be sold at $50 per unit.

Considering the net income of the six scenarios:
1) 35,000 units in demand and 15,000 units in supply, which means that 15,000 units will be produced by batch production and extra 20,000 units will be produced by outside vendor Snowcap.
Net Income = Total Income - Total Cost…...

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