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Dell has decided to improve its products' cooling system to achieve better performance and enhance their efficiency. To do so Dell determined its need to design 25,000 new hybrid cooling fans. The company has two choices, either to Make, or Outsource the hybrid cooling fans. In the Making process, Dell must pay $5 per fan with a production line cost of $5,000. The process could be either a success or a failure, with a probability of 0.65 in case of success and 0.35 in case of failure. If the making process was successful, no additional fees will be incurred. On the other hand, if the process was a failure, then 1596 of total fans made must be fixed with a fixing cost/defective fan of $3. In the outsourcing process, the cost per fan depends on the market conditions. According to previous studies, the market could have two approaches, the first approach will cost Dell $8 per fan, while the second market approach will cost Dell $4.5 per fan and a Tax of 13% &: 20% defective fans with a probability of 0.7. • 45% defective fans with a probability of 0.3. • a fixing cost/defective fan of $2.5. The first market approach has 0.8 probability, and the second approach has 0.2 probability. EMV of the "Making" process is $75,500 $133,937.50 $193,333.50

Dell has decided to improve its products' cooling system to achieve better performance and enhance their efficiency. To do so Dell determined its need to design 25,000 new hybrid cooling fans. The company has two choices, either to Make, or Outsource the hybrid cooling fans. In the Making process, Dell must pay $5 per fan with a production line cost of $5,000. The process could be either a success or a failure, with a probability of 0.65 in case of success and 0.35 in case of failure. If the making process was successful, no additional fees will be incurred. On the other hand, if the process was a failure, then 1596 of total fans made must be fixed with a fixing cost/defective fan of $3. In the outsourcing process, the cost per fan depends on the market conditions. According to previous studies, the market could have two approaches, the first approach will cost Dell $8 per fan, while the second market approach will cost Dell $4.5 per fan and a Tax of 13% &: 20% defective fans with a probability of 0.7. • 45% defective fans with a probability of 0.3. • a fixing cost/defective fan of $2.5. The first market approach has 0.8 probability, and the second approach has 0.2 probability. EMV of the "Making" process is $75,500 $133,937.50 $193,333.50

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter16: Cost-volume-profit Analysis
Section: Chapter Questions
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Dell has decided to improve its products' cooling system to achieve better performance and enhance their efficiency. To do so Dell determined its need to design 25,000 new hybrid cooling fans. The company has two choices, either to Make, or Outsource the hybrid cooling fans. In the Making process, Dell must pay $5 per fan with a production line cost of $5,000. The process could be either a success or a failure, with a probability of 0.65 in case of success and 0.35 in case of failure. If the making process was successful, no additional fees will be incurred. On the other hand, if the process was a failure, then 15% of total fans made must be fixed with a fixing cost/defective fan of $3. In the outsourcing process, the cost per fan depends on the market conditions. According to previous studies, the market could have two approaches, the first approach will cost Dell $8 per fan, while the second market approach will cost Dell $4.5 per fan and a Tax of 13% &: • 20% defective fans with a probability of 0.7. • 45% defective fans with a probability of 0.3. a fixing cost/defective fan of $2.5. The first market approach has 0.8 probability, and the second approach has 0.2 probability. EMV of the "Making" process is $75,500 O $133,937.50 $193,333.50
Transcribed Image Text:Dell has decided to improve its products' cooling system to achieve better performance and enhance their efficiency. To do so Dell determined its need to design 25,000 new hybrid cooling fans. The company has two choices, either to Make, or Outsource the hybrid cooling fans. In the Making process, Dell must pay $5 per fan with a production line cost of $5,000. The process could be either a success or a failure, with a probability of 0.65 in case of success and 0.35 in case of failure. If the making process was successful, no additional fees will be incurred. On the other hand, if the process was a failure, then 15% of total fans made must be fixed with a fixing cost/defective fan of $3. In the outsourcing process, the cost per fan depends on the market conditions. According to previous studies, the market could have two approaches, the first approach will cost Dell $8 per fan, while the second market approach will cost Dell $4.5 per fan and a Tax of 13% &: • 20% defective fans with a probability of 0.7. • 45% defective fans with a probability of 0.3. a fixing cost/defective fan of $2.5. The first market approach has 0.8 probability, and the second approach has 0.2 probability. EMV of the "Making" process is $75,500 O $133,937.50 $193,333.50
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