Home Furnishings and Decorations Inc. can revamp the loading area of their wareh

Question

Home Furnishings and Decorations Inc. can revamp the loading area of their warehouse to improve the efficiency of loading trucks. They have two possible proposals for the work, one that modernizes their current setup and one that is a new layout, which would be a sweeping change in workflow but promises a huge gain in efficiency for high volumes of traffic. The new layout, however, is a lot more expensive to build. Use the payoff table to determine the expected profit or loss for each purchase, and determine the optimal purchase.

Plan Gain clients (0.4) No change (0.4) Lose clients (0.2) New loading layout $32,400 $5,250 -$45,450 Modernized layout $12,290 $10,050 -$10,800 No change $9,400 $0 -$2,600

Explanation / Answer

0.4x32400 + 0.4*5250-0.2*45450 = 5970

0.4*12290+0.4*10050-0.2*10800 = 6776

0.4*9400+0-0.2*2600 = 3240

Optimal purchase is modernized layout

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