Based on this information, how should the four options be ranked?

A manufacturing firm redesigns its premier product to benefit from material standardization. The change will entail re-tooling costs. The firm conducts a cost benefit analysis on four possible options. Option 1 is to make no change at all.

Options 2, 3, and 4 represent different re-tooling configurations involving different materials:

In addition to this, there will be a cost of $3.5 million in lost production during Year 1, should any of the re-tooling options (2, 3, or 4) be selected.

The firm wants to rank the options in order of financial preference, from the best option to the worst.

Based on this information, how should the four options be ranked?
A . 2,3,1,4
B . 4,1,3,2
C . 4,3,2,1
D . 1,2,3,4

View Answer

Answer: C

Explanation:

To determine the financial preference, we calculate total costs including re-tooling, material, labor, and lost production for each option. Option 4 has the lowest total cost, followed by Option 3, then Option 2, and Option 1, which incurs the highest costs without any change. This ranking is based on cumulative costs over five years.

Reference: Cost-benefit analysis in supply chain management helps in decision-making by comparing total costs of different strategies.