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Decision Tree

I would like to have someone explain to me how to set up formulas and solve my first problem. With my second problem I need to understand how to evaluate the data given and construct a decision tree accordingly.

Here's the problem I need to understand how to construct the formula to solve.
The materials manager for K-Flex Corportion is analyzing how to produce a new part that will be needed for the next few years. K-Flex has manufacturing plants in Japan, China, and South Africa that could produce the part. The forecast calls for 20,000 units of the part each year. The materials manager has developed the following estimates for the three alternative locations:

see attachements 1 and 2

Here's the problem I need to understand how to construct the formula to solve. The materials manager for K-Flex Corportion is analyzing how to produce a new part that will be needed for the next few years. K-Flex has manufacturing plants in Japan, China, and South Africa that could produce the part. The forecast calls for 20,000 units of the part each year. The materials manager has developed the following estimates for the three alternative locations:

Plant Type of Cost Annual Fixed Cost Annual Variable Cost
Japan Annuat Tooling $130,000 $1.30
Inspection and rework shipping $3.20

Production Cost $4,500 $23.50
China Annual Tooling $45,000 $2.55
Inspection and rework shipping $3.90
Production Cost $9,500 $26.20
South Africa Annuat Tooling $65,000 $1.90
Inspection and rework shipping $2.90
Production Cost $7,000 $25.10

Help with understanding how to read problem and construct a decision tree to analyze. A home products discount store is considering expanding its capacity to meet a growing demand for its products. The alternatives are to build a new store at a site nearby, expand and refurbish the old store, or do nothing. Economists have projected the regional economic outlook: a 50 percent probability that the economy will remain unchanged, a 20 percent probability of an economic upturn and a 30 percent probability of an economic downturn. The following estimates of annual returns have been prepared in millions:

Market Downturn Stable Market Market Upturn
Build new Store ($0.8) $0.5 $2.1
Expand Old Store ($0.4) $0.8 $1.4
Do Nothing ($0.1) $0.2 $0.5

Show how to set up formula to show what return will acccure to the company after recommendation is followed

Attachments

Solution Preview

1. To set up the formula, the first thing you should do is to put up a total row for the fixed costs and the variable costs - Row 13, 17 and 21 in the file. Put up a colums for number of units produced column H. In colun I put the formula for calculating the total cost. The formula is Total variable cost*units+total fixed cost. The number of units for Japan are to be entered and the units in China and South Africa are linked. If you change the Japan units, the rest also change to give you an idea of the changes in total cost. If we have to find out the least cost producer ...

Solution Summary

The solution explains the use of decision tree in making decisions.

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