The Gorman Manufacturing Company must decide whether it should purchase a compon

Question

The Gorman Manufacturing Company must decide whether it should purchase a component part from a supplier or manufacture the component at its Milan, Michigan plant. If demand is high, it would be to Gorman’s advantage to manufacture the component. However, if demand is low, Gorman’s unit manufacturing cost will be high due to under-utilization of equipment. The projected profit in thousands of dollars for Gorman’s make or buy decision is shown below.

                          Low Demand        Moderate Demand         High Demand

      Manufacture          -$25            $40                      $100

      Purchase                $10            $45                       $70

     Construct the regret table. Solve for minimax regret.

Explanation / Answer

Here the best return and worst return table

Here the regret table is

So, here the worst regret is minimum 30 for Purchase Thing so The Gorman Manufacturing Company must purchase a component part from a supplier instead of manufacture the component at its Milan, Michigan plant.

Demand Low Moderate High Worst Return manufacture -25 40 100 -25 Purchase 10 45 70 10 Best return 10 45 100

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