Exam 18: Decision Theory and the Normal Distribution

Given the following opportunity loss function, determine the loss when 1,100 units are sold. Opportunity loss = 3 (1,000 - X)for X ≤ 1,000, otherwise 0.

If the break-even volume doubles, this suggests that

Briefly describe the opportunity loss function.

Harry Sprague makes custom bowling balls.His fixed cost is $255,000, variable cost is $45.50, and selling price is $55.50.To what value must he reduce his variable cost if he wants a break-even point of 10,000 units?

If the fixed costs are $25,000 and the variable cost/unit is $35 and the selling price is $375 units, what is the break-even?

The price/unit minus the variable cost/unit is

The unit normal loss integral can be used to compute EOL.

Jack Spratt makes candlesticks.His fixed cost is $5,000, variable cost is $3.50, and selling price, $8.50.To what value must he reduce his variable cost if he wants a break-even point of 900 units?

Given the following opportunity loss function, determine the loss when 500 units are sold. Opportunity loss = 2 (600 - X)for X ≤ 600, otherwise 0.

If the fixed costs are $15,000 and the variable cost/unit is $35 and the break-even is 100 units, what is the selling price per unit?

If the fixed costs are $10,000 and the variable cost/unit is $10 and the break-even is 100 units, what is the selling price per unit?

Cost volume analysis deals only with costs while break-even analysis deals with both costs and revenues.

Tony B.is attempting to start a landscaping business.He estimates that to break even, he will need about 150 customers.He believes that he will lose approximately $500 per customer for each customer fewer than the 150.At the moment, he believes there is an 80% probability that he will be able to secure between 130 and 170 customers, and that there is a 50/50 chance that demand will be greater than 160 customers.What is the mean or expected number of sales?

If D = 0.75, s = 500, K = 6, and the selling price/unit = 5, determine EOL.

Given the following opportunity loss function, determine the loss when 400 units are sold. Opportunity loss = 3 (1,000 - X)for X ≤ 1,000, otherwise 0.

In many business break-even analyses, the normal distribution can be used to estimate demand.

EVPI and minimum EOL are equivalent.

The parfumerie at Amour Fou projects that the annual worldwide demand for their new fragrance Odeur de Fromage will be normally distributed with a mean of 122 units and a standard deviation of 44.The break-even point is 100 units, and for each unit sold less than that number, the company will lose $750.What is the expected opportunity loss?

Given the following opportunity loss function, determine the loss when 5,000 units are sold.Opportunity loss: 6.5(8,000 - X)for X ≤ 9,000.

The IRU Company manufactures traditional wooden pencils.They have determined their variable cost/unit to be $0.012/pencil.Fixed costs, however, are quite high because of old processing equipment and costly packaging.The fixed costs are estimated at $140,000/month.IRU sells their pencils at a price of $13.248/gross.(There are 144 pencils in a gross.)How many grosses of pencils must be sold annually to break even?