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Ritz Products’s materials manager, Tej Dhakar, must
determine whether to make or buy a new semiconductor for the
wrist TV that the firm is about to produce. One million units
are expected to be produced over the life cycle. If the product is
made, start-up and production costs of the make decision total
$1 million, with a probability of .4 that the product will be satisfactory and a .6 probability that it will not. If the product is
not satisfactory, the firm will have to reevaluate the decision

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Parrain

Based on the cost of making the semiconductor and the cost of purchasing it, the best thing for Tej Dhakar to do is to purchase the semiconductor.

What are the costs of purchasing the conductor v. making it?

The cost of purchasing the conductor is:

= Cost of purchasing + (Cost of purchasing x probability that product will not be satisfactory)

= 1,000,000 + (1,000,000 x 0.6)

= $1,600,000

Cost of making the product:

= (Cost of making the product x Probability of success the second time x Probability of failure the first time) + Cost of making product x Probability of success the first time

= (3,000,000 x 0.8 x 0.6) + (3,000,000 + 0.4)

= $2,640,000

In conclusion, firm should purchase the product because it is cheaper to do so.

Find out more on purchase decisions at https://brainly.com/question/7029808.

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