JDI, Inc Is Trying to Decide Whether to Make or Buy

Essay

JDI, Inc. is trying to decide whether to make or buy a part (#J-45FPT). Purchasing the part would cost $1.30 each. If they design and produce it themselves, it will result in a per unit cost of $0.82. However, the design investment would be $40,000. Further, they realize that for this type of part, there is a 25% chance that the part will need to be redesigned at an additional cost of $50,000. Regardless of whether they make or buy the part, JDI will need 80,000 of these parts. Using decision trees analysis and EMV, what should JDI do? Show the decision tree.