Exam 18: Decision Theory and the Normal Distribution

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?

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

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

If D = 1.00,then N(1.00)is approximately

When computing Z for a break-even analysis: as σ increases,Z decreases.

For volumes greater than the break-even point,the opportunity loss function is

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?

In decision-making,we use the normal distribution when there are ________.

The computed EOL will be the same as the computed

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.

The price/unit minus the variable cost/unit is

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?

The mean of a distribution locates the ________ of the distribution.

EVPI and minimum EOL are equivalent.

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

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?

Break-even analysis answers what common management question?

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?

Using EOL requires one to identify the loss per unit when sales are below the break-even point.

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