Perform Decision Tree Analysis Assignment
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 $21,000 to fix the units, as well as the $2,000 per unit cost of re-readying them for delivery, for a $23,000 total cost 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.
To fully complete this assignment, you need to answer or perform the following:
- Fill in the values/calculations requested by the lines tagged with “answer here”.
- This is the math and resulting values you are expected to fill in to show the completion of the decision tree.
- Be sure to fill in the last two values: what is the Expected Monetary Value for both performing the test and not performing the test?
- Which choice should be made? Be sure to include with your submission an answer to whether the test should be performed or not, and give a short answer why.