To determine the alternative that provides Zhu Manufacturing the greatest Expected Monetary Value (EMV), we need to calculate the EMV for each process (batch manufacturing, custom manufacturing, and group technology) and choose the one with the highest EMV.
EMV is calculated as the sum of the product of the payoff and its probability for each demand level. The formula for EMV is:
EMV = Σ (Probability of Demand Level × Payoff for that Demand Level)
Let's calculate the EMV for each process:
For Batch Manufacturing:
EMV (Batch Manufacturing) = (0.05 × -$200,000) + (0.45 × $1,200,000) + (0.20 × $1,100,000) + (0.30 × $1,200,000)
EMV (Batch Manufacturing) = -$10,000 + $540,000 + $220,000 + $360,000
EMV (Batch Manufacturing) = $1,110,000
For Custom Manufacturing:
EMV (Custom Manufacturing) = (0.05 × $200,000) + (0.45 × $300,000) + (0.20 × $750,000) + (0.30 × $700,000)
EMV (Custom Manufacturing) = $10,000 + $135,000 + $150,000 + $210,000
EMV (Custom Manufacturing) = $505,000
For Group Technology:
EMV (Group Technology) = (0.05 × -$1,000,000) + (0.45 × -$500,000) + (0.20 × $22,000) + (0.30 × $2,100,000)
EMV (Group Technology) = -$50,000 + (-$225,000) + $4,400 + $630,000
EMV (Group Technology) = $359,400
The alternative that provides Zhu Manufacturing the greatest Expected Monetary Value (EMV) is Group Technology with an EMV of $359,400.