Exam 16: Supplement A Decision Making

Table A.1 Use the following to answer the questions below. A couple planning a vacation needs to choose between four different modes of transportation as shown in the table. Depending on the weather, either excellent, normal, or bad, they have estimated their daily comfort expenses. -An optimistic couple would opt for a(n) ________ based on the information presented in Table A.1.

Demron is in serious negotiations to purchase a welding machine that will enable them to perform their own welding. They currently have their welding outsourced at a cost of $1.50 per weld and a fixed cost of $45,000. Their marketing team feels that they can sustain an annual sales volume sufficient to require 35,000 welds. If a fancy new welding rig costs $13,500 what is the maximum variable cost per weld that Demron should be willing to pay in order to bring this process in-house?

Use this scenario to answer the following questions. A company must decide if it will make or buy an item it needs. The company can make the item for $10 per unit, but must invest $15,000 in tooling to achieve that capability. Alex Rogo has quoted a total price of $12 per unit to supply the quantity required (assume their fixed costs are included in the quoted price). -Refer to the instruction above. Which alternative should be selected if annual requirements are 5,000 units?

Table A.2 Use the following to answer the questions below. A company that is introducing a new product has to choose between four different manufacturing methods, referred to as methods A, B, C and D. Depending on the demand for the product, they forecast different levels of expenses for the year (values are in thousands). The company has identified three possible states of nature for economic growth, and named them High, Medium, and Low. -Using the information in Table A.2, which alternative is best in accordance with an optimistic outlook?

Use the following information to answer the questions below. You currently make a part for old equipment at a cost of $20 / unit. The annual fixed cost for this equipment is $50,000. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year (see table). -Refer to the instruction above. For what range of output would you prefer to buy?

The ________ nodes have probabilities associated with them in a decision tree.

Maximax is a decision rule for the pessimist.

A single factory produces two different products during each half of the year with equivalent fixed cost; from January through June they produce Product A and from July through December they produce Product B. Product A costs twice as much to produce and is sold at twice the price of Product B. Derive an expression relating the break-even quantity of Product A to that of Product B.

A company faces a fixed cost of $568 and sells items at a 50% markup on their cost of $12. What is their break-even point in both units and dollar sales?

Use the following to answer the questions below. In choosing between three new jobs, Joe MBA considers the potential payoffs over the next three years. The following table contains the payoffs, given the speed of promotion in each of the organizations. The probability of fast promotion is 0.6, and the probability of slow promotion is 0.4. -Use the information in Table A.3. Which alternative is best, given the matrix payoff?

The break-even quantity for a certain kitchen appliance is 6,000 units. The selling price is $10 per unit, and the variable cost is $4 per unit. What must be the fixed cost to break even at 6,000 units?

Which one of the following statements about break-even analysis for evaluating products or services is True?

Use the following to answer the questions below. A proposal for implementing a new product line has an annual fixed cost of $60,000, variable cost of $35 per unit of output, and revenue (selling price) of $55 per unit of output. -Refer to the instruction above. What is the break-even quantity?

The ________ is the volume at which total revenues equal total costs.

________ is a technique for systematically changing parameters in a model to determine the effects of such changes.

The break-even quantity is the volume at which the total revenue equals total cost.

Choosing the alternative that minimizes lost-opportunity costs using decision making under uncertainty would be:

If a new alternative is added to a payoff table and the maximax criterion is applied again, the new decision must either remain with the original maximax alternative or the new alternative.

Which one of the following statements about break-even analysis, as we applied it to evaluating products or services, is best?

The Hill O'Beans Coffee Company operates a chain of coffee shops downtown and has decided to open a new store. The demand will be weak, fair, or strong; probabilities are 0.25, 0.30, and 0.45, respectively. If the company installs a small booth that sells only coffee, the associated payoffs are -$25,000; 25,000; and $100,000 for weak, fair, and strong demand. If the company chooses an expanded facility that offers sandwiches and breakfast foods, it must build a kitchen and rent additional space. The payoffs for an expanded facility are -$200,000, -$25,000, and $500,000. a. Draw a decision tree for this problem. b. What should management do to achieve the highest expected payoff?