Question 1

If fixed costs were to double unexpectedly, the break-even point would be

Accepted Answer

A) unaffected. 
B) doubled. 
C) halved. 
D) increased by a factor of four. 
A) unaffected. 
B) doubled. 
C) halved. 
D) increased by a factor of four. B

Question 2

A food truck sells an average of 1240 black bean lattes with a standard deviation of 80.What level of customer demand represents the 15th percentile for black bean lattes?

Accepted Answer

A) 1066 
B) 1157 
C) 1183 
D) 1204 
A) 1066 
B) 1157 
C) 1183 
D) 1204 B

Question 3

In a normal distribution, there is a greater chance of seeing an observation one standard deviation above the mean than one standard deviation below the mean.

Accepted Answer

A) True 
 B)False  False

Question 4

Tony B.is attempting to start a landscaping business.He estimates that to break even, he will need about 140 customers.He believes he will lose approximately $500 per customer for each customer fewer than the 140.At the moment, he believes that there is an 80% probability that he will be able to secure at least 130 customers and that there is a 50/50 chance that demand will be greater than 150 customers.He has several marketing research firms offering (for a price, of course)to conduct a survey that will provide additional information regarding the probability of demand.How much should he be willing to spend if he decides to have a survey made?

Accepted Answer

A) ≅ $4,000 
B) ≅ $3,000 
C) ≅ $5,000 
D) ≅ $2,700 
A) ≅ $4,000 
B) ≅ $3,000 
C) ≅ $5,000 
D) ≅ $2,700

Question 5

If D = 1.01, s = 900, K = 10, and the selling price is $11, the EOL is

Accepted Answer

A) ≅ 10,000. 
B) ≅ 9,100. 
C) ≅ 736. 
D) ≅ 810. 
A) ≅ 10,000. 
B) ≅ 9,100. 
C) ≅ 736. 
D) ≅ 810.

Question 6

The binomial distribution can be used when there are a small number of states of nature and/or alternatives.

Accepted Answer

A) True 
 B)False

Question 7

If the fixed costs are $15,000 and the variable cost/unit is $35 and the selling price is $375 units, what is the break-even?

Accepted Answer

A) $38.18 
B) $40.22 
C) $42.16 
D) $44.12 
A) $38.18 
B) $40.22 
C) $42.16 
D) $44.12

Question 8

Determine N(D)for the following D values: 0.01, 0.21, 0.77, and 1.20.

Accepted Answer

N(D)= 0.39

Question 9

In accordance with their government contract, the break-even point was determined to be 5,000 units/month.Next month begins an increased lease payment for the production facility such that the fixed cost rises to $13,000.If the selling price is $38.75, what is the variable cost?

Accepted Answer

(5,000*$38

Question 10

Which of these statements is best?

Accepted Answer

A) P(loss)= P(break-even  break-even). 
C) The mean of a distribution is less than or equal to the expected value of the distribution. 
D) As σ increases, the spread of a distribution decreases. 
A) P(loss)= P(break-even  break-even). 
C) The mean of a distribution is less than or equal to the expected value of the distribution. 
D) As σ increases, the spread of a distribution decreases.

Question 11

When using the normal distribution to approximate demand, which of the following is not true?

Accepted Answer

A) We assume demand is normally distributed. 
B) We assume demand is a random variable. 
C) We assume 50 percent of the time demand is less than the mean. 
D) We assume the fixed cost follows a normal distribution. 
A) We assume demand is normally distributed. 
B) We assume demand is a random variable. 
C) We assume 50 percent of the time demand is less than the mean. 
D) We assume the fixed cost follows a normal distribution.

Question 12

break-even analysis answers what common management question?

Accepted Answer

At what po

Question 13

In determining the EOL with the normal distribution, as D increases, the unit normal loss integral, N(D), also increases.

Accepted Answer

A) True 
 B)False

Question 14

The Truck Toys Company manufactures traditional wooden toy trucks.It has determined its variable cost/unit to be $1.50/truck.Fixed costs, however, are quite high because old equipment is used in the manufacturing process and costly packaging is needed to market the toy trucks.The fixed costs are estimated at $11,000/month.The company sells their toy trucks at a price of $7.75/each.How many toy trucks must be sold annually to break even?

Accepted Answer

A) 1,760 toy trucks 
B) 5,500 toy trucks 
C) 21,120 toy trucks 
D) 1,879 toy trucks 
A) 1,760 toy trucks 
B) 5,500 toy trucks 
C) 21,120 toy trucks 
D) 1,879 toy trucks

Question 15

Given the following opportunity loss function, determine the loss when 600 units are sold. Opportunity loss = 2 (600 - X)for X ≤ 600, otherwise 0.

Accepted Answer

A) 2 
B) 600 
C) 1,200 
D) 0 
A) 2 
B) 600 
C) 1,200 
D) 0

Question 16

If the price/unit were doubled at the same time that the variable cost/unit doubled, the break-even point would be

Accepted Answer

A) unaffected. 
B) doubled. 
C) halved. 
D) increased by a factor of four. 
A) unaffected. 
B) doubled. 
C) halved. 
D) increased by a factor of four.

Question 17

If a variable other than demand is random (price, fixed or variable cost, etc.)the problem of break-even analysis becomes much more complex.

Accepted Answer

A) True 
 B)False

Question 18

The opportunity loss function gives us information about

Accepted Answer

A) the variable costs we should expect to incur. 
B) cost and revenues as a function of demand. 
C) the number of products we should expect to sell. 
D) profits lost if demand is less than the break-even point. 
A) the variable costs we should expect to incur. 
B) cost and revenues as a function of demand. 
C) the number of products we should expect to sell. 
D) profits lost if demand is less than the break-even point.

Question 19

If the break-even point was estimated to be 500 units when fixed costs are estimated at $1,200/month, what would the EMV be if average demand is estimated at 750?

Accepted Answer

500 = 1,200/(P - V),

Question 20

To determine the EOL with the normal distribution

Accepted Answer

A) one must compute D. 
B) one must compute Z. 
C) one must use the standard normal table. 
D) one must know the EVPI. 
A) one must compute D. 
B) one must compute Z. 
C) one must use the standard normal table. 
D) one must know the EVPI.

Exam 18: Decision Theory and the Normal Distribution

If fixed costs were to double unexpectedly, the break-even point would be

A food truck sells an average of 1240 black bean lattes with a standard deviation of 80.What level of customer demand represents the 15th percentile for black bean lattes?

In a normal distribution, there is a greater chance of seeing an observation one standard deviation above the mean than one standard deviation below the mean.

If D = 1.01, s = 900, K = 10, and the selling price is $11, the EOL is

The binomial distribution can be used when there are a small number of states of nature and/or alternatives.

If the fixed costs are $15,000 and the variable cost/unit is $35 and the selling price is $375 units, what is the break-even?

Determine N(D)for the following D values: 0.01, 0.21, 0.77, and 1.20.

In accordance with their government contract, the break-even point was determined to be 5,000 units/month.Next month begins an increased lease payment for the production facility such that the fixed cost rises to $13,000.If the selling price is $38.75, what is the variable cost?

Which of these statements is best?

When using the normal distribution to approximate demand, which of the following is not true?

break-even analysis answers what common management question?

In determining the EOL with the normal distribution, as D increases, the unit normal loss integral, N(D), also increases.

Given the following opportunity loss function, determine the loss when 600 units are sold. Opportunity loss = 2 (600 - X)for X ≤ 600, otherwise 0.

If the price/unit were doubled at the same time that the variable cost/unit doubled, the break-even point would be

If a variable other than demand is random (price, fixed or variable cost, etc.)the problem of break-even analysis becomes much more complex.

The opportunity loss function gives us information about

If the break-even point was estimated to be 500 units when fixed costs are estimated at $1,200/month, what would the EMV be if average demand is estimated at 750?

To determine the EOL with the normal distribution

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