Exam 17: Decision Making

The decision rule ________ chooses the alternative with the best weighted payoff.

A new product will sell in the market for $12.It costs $7 (unit variable cost)to manufacture on a new lathe machine.If the break-even quantity is 10,000 units,what is the annual fixed cost involved in acquiring the machine and in paying other fixed costs?

The decision rule ________ is also referred to as the optimist's criterion.

Mantel Incorporated began producing its new line of dolls at its Connecticut plant in December of year 0.In year 1,it produced 30,000 dolls at a total cost of $385,000.In year 2,its production increased to 80,000 dolls at a total cost of $885,000.Assuming the cost structure was the same for both years,what must be the variable cost (c)and the fixed cost (F)per doll?

Use the following to answer the questions below. Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table. Table A.1 -Use the information in Table A.1.What is the difference in break-even points for the Large model between Tuttle and San Francisco?

Use the following to answer the questions below. Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table. Table A.1 -Use the information in Table A.1.If executives decide to produce at the San Francisco plant but are nervous about sales numbers,which model would provide the greatest profit at the lowest sales volumes?

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.What are total costs to make a quantity of 40,000 units per year?

In decision theory,the different courses of action that a decision maker can choose are called ________.

Analyze the following decision tree.Determine the missing probabilities,and identify the alternative that maximizes the expected payoff.

Given a payoff table in a decision making under risk scenario,what value is derived from applying all four criteria presented in your book and selecting the alternative that is chosen the most times by the four criteria?

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 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.

Minor Video has opened a new store renting videocassettes.Fixed costs are $60,000,and the variable cost per unit is $1.50.The average sale is $5 per customer.Use the following axes to determine the break-even quantity graphically.Next,refine your solution by solving it algebraically.(Show your work for credit. )

A payoff table shows the amount for each alternative if each possible event occurs.

The square nodes in a decision tree represent the alternatives in a sequential decision situation.

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. Table A.4 -Use the information in Table A.4 and the minimax regret decision rule.The maximum regret is:

The variable cost is the portion of total cost that remains constant regardless of changes in levels of production.

Decision theory is a general approach to decision making when the outcomes associated with alternatives are often in doubt.

A company that is introducing a new product has to choose between four marketing plans,A through D.The marketing plans are forecasted to have varying payoffs,depending on the level of advertising.The probability of high demand is 0.6 and of low demand 0.4.Use the following decision rules to select the marketing plan: maximin,maximax,minimax regret,Laplace,and expected value.