Exam 17: Decision Making

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 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 make?

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?

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

A preference matrix is a table that allows the manager to rate an alternative according to one performance criterion.

Use the following to answer the questions below. A company that is introducing a new product has to choose between three different manufacturing methods,referred to as methods A,B,and C.Depending on the demand for the product,they have forecast different levels of revenue 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. Table A.2 -Using the information in Table A.2,which alternative is best in accordance with a decision criterion of Laplace?

Keith Monroe is deciding among four alternatives and fleshes out the decision tree shown below.He has developed excellent estimates of payoffs but admits he has no clue about the probabilities for the two states of nature.He wants to cover all of his bases,so he would like to calculate the probability of high demand for which each alternative is superior.Analyze this situation and make recommendations for him.He promises to cut you in for 30% of the profits if you can show him how to calculate the ranges.

California Manufacturing,Inc.is now evaluating two new product ideas,and management has decided to apply the preference matrix method.The following table shows five criteria with different weights and individual scores of each product idea.If management has established a threshold of 800,which product(s)should be accepted for further development?

Use the following to answer the questions below. A company is considering two suppliers for the purchase of a part needed for manufacturing.Particulars are as follows: -Refer to the instruction above.What does the company save for the year by selecting this low-cost option (for annual requirements of 3,000 units)?

A new minor league baseball team is coming to town and the owners have decided to build a new stadium,either small or large.The success of the team with regard to ticket sales will be either high or low with probabilities of 0.75 and 0.25,respectively.If demand for tickets is high,the large stadium would provide a payoff of approximately $20 million.If ticket sales are low,the loss on the large stadium would be $5 million.If a small stadium is constructed,and ticket sales are low,the payoff is $500,000 after deducting the cost of construction.If ticket sales are high,the team can choose to build an upper deck,or to maintain the existing facility.Expanding the stadium in this scenario has a payoff of $10 million,whereas maintaining the same number of seats has a payoff of only $3 million. a.Draw a decision tree for this problem. b.What should management do to achieve the highest expected payoff?

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

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

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 does the company save for the year by selecting the low-cost option (for annual requirements of 40,000 units)?

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 selling price would be necessary to generate an annual profit of $90,000,if expected volume is 6,000 units per year (assume fixed costs remain at $60,000,and variable cost per unit at $35)?

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

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 is the break even quantity between buying and making?

By definition,the maximax and maximin criteria cannot result in the selection of a common alternative in decision making under uncertainty.

Maximax is a decision rule for the pessimist.