Exam 13: Decision Making

A(n)________ shows the amount of revenue for each alternative if each possible event occurs.

A software company that sells its software pre-installed in personal computers is considering making its own computers instead of purchasing them from the Mega-Chip Company.To assemble their own computers could cost $1,000,000 in fixed costs and $100 per unit in variable costs.The company currently buys PCs for $1200,with no fixed costs.What is the break-even quantity?

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

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 Model Regular Large Jumbo Variable Cost \ 5 /unit \ 7 /unit \ 10/ unit Sale Price \ 25/ unit \ 41 /unit \ 68/ unit -Use the information in Table A.1.Assume the fixed costs and sales price in both locations are constants and the variable costs in San Francisco are as shown in the table.By how much would the variable cost in Tuttle have to rise to give both locations an identical break-even point for the Regular model?

A wily marketing director must decide among four alternatives for a new marketing campaign.She ascertains that the probability of high demand is 0.8 and the probability of low demand is 0.2.What is the best choice with the payoffs shown in the tree?

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. High Medium Low Method A \ 80 \ 61 \ 38 Method B \ 22 \ 46 \ 100 Method C \ 9 \ 14 \ 52 Method D \ 44 \ 55 \ 24 -Using the information in Table A.2,which alternative is best in accordance with a decision criterion of maximax?

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? Score Product Performance Criterion Weight A B Market potential 40 10 8 Profitability 30 8 8 Operations compatibility 15 2 10 Investment requirements 10 4 6 Risk 6 8 100

A chance event that has an impact on the outcome of the choice but is not under the manager's control is called a(n)________.

What assumptions are made when using break-even analysis?

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. Payoff (Dollars) Marketing Plan High Demand Low Demand A 100,000 25,000 B 50,000 45,000 C 75,000 35,000 D 125,000 10,000

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 Model Regular Large Jumbo Variable Cost \ 5 /unit \ 7 /unit \ 10/ unit Sale Price \ 25/ unit \ 41 /unit \ 68/ unit -Use the information in Table A.1.What is the slope of the fixed-cost line for production in San Francisco?

The site selection team you formed last quarter meets with you in the conference room to present the results of their thoughtful analysis.They have collectively logged 200,000 frequent flyer miles while conducting their investigation.The conference room table sags under the weight of their massive report and all team members sport deep tans.As the leader drones on about their completely objective approach to the problem,he projects a slide containing the following information about their location of choice. Rio de Janeiro Weight (A) Score (B) Weighted Score (A xB) Infrastructure 20 8 160 Utility Costs 25 5 125 Labor Skill 25 6 150 Labor Cost 20 7 140 Political climate 10 4 40 Final Weighted Score 615 What questions do you,a conscientious vice-president level executive,have for the team about this portion of their analysis?

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

Under what conditions can decision trees be useful?

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. High Medium Low Method A \ 80 \ 61 \ 38 Method B \ 22 \ 46 \ 100 Method C \ 9 \ 14 \ 52 Method D \ 44 \ 55 \ 24 -Using the information in Table A.2,which alternative is best if further study revealed that the probability of high growth is 0.2,the probability of medium growth is 0.5,and the probability of low growth is 0.3?

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

The break-even quantity for a certain kitchen appliance is 6000 units.The selling price is $10 per unit,and the variable cost is $4 per unit.What must be the fixed cost to break even at 6000 units?

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. High Medium Low Method A \ 80 \ 61 \ 38 Method B \ 22 \ 46 \ 100 Method C \ 9 \ 14 \ 52 Method D \ 44 \ 55 \ 24 -Using the information in Table A.2,which alternative is best in accordance with a decision criterion of minimax regret?

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. High Medium Low Method A \ 80 \ 61 \ 38 Method B \ 22 \ 46 \ 100 Method C \ 9 \ 14 \ 52 Method D \ 44 \ 55 \ 24 -Using the information in Table A.2,which alternative is best in accordance with a decision criterion of maximin?

The Hill O'Beans Coffee Company operates a chain of coffee shops downtown and has decided to open a new store.The demand will be weak,fair,or strong; probabilities are 0.25,0.30,and 0.45,respectively. If the company installs a small booth that sells only coffee,the associated payoffs are -$25,000; 25,000; and $100,000 for weak,fair,and strong demand.If the company chooses an expanded facility that offers sandwiches and breakfast foods,it must build a kitchen and rent additional space.The payoffs for an expanded facility are -$200,000,-$25,000,and $500,000. a.Draw a decision tree for this problem. b.What should management do to achieve the highest expected payoff?