A company is considering three alternative machines to produce a new product. The cost structures (unit variable costs plus avoidable fixed costs) for the three machines are shown as follows. The selling price is unaffected by the machine used.
Single purpose machine $.60x + $20,000
Semiautomatic machine $.40x + $50,000
Automatic machine $.20x + $120,000
The demand for units of the new product is described by the following probability distribution.
Demand.. Probability
200,000 ..0.4
300,000 ..0.3
400,000 ..0.2
500,000 ..0.1
Using the expected value criterion,