Company X produces radio equipment. The company is considering the use of high- quality materials to enhance the quality of its products and create a positive reputation in the market. If the company applies the plan, the variable cost per unit would increase. The company will also need to pay additional money into an advertising campaign. Overall, the company expects that contribution margin would increase. Moreover, the company expects that the additional advertising costs would be lower than the increase in contribution margin. What would be the effect of the new plan on operating

Company X produces radio equipment. The company is considering the use of high- quality materials to enhance the quality of its products and create a positive reputation in the market. If the company applies the plan, the variable cost per unit would increase. The company will also need to pay additional money into an advertising campaign. Overall, the company expects that contribution margin would increase. Moreover, the company expects that the additional advertising costs would be lower than the increase in contribution margin. What would be the effect of the new plan on operating

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 5P: Hudson Corporation is considering three options for managing its data warehouse: continuing with its...

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Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?
Southland Corporation’s decision to produce a new line of recreational products resulted in the need to construct either a small plant or a large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars: What is the decision to be made, and what is the chance event for Southland’s problem? Construct a decision tree. Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches.
Clarke, Inc. manufactures door panels. Suppose Clarke, Inc. is considering spending the following amounts on a new total quality management (TQM) program: View the spending amounts. Clarke, Inc. expects the new program would save costs through the following: View the savings amounts. Requirements 1. Classify each cost as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. 2. Should Clarke, Inc. implement the new quality program? Give your reason. Requirement 1. Classify each cost as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. Type of Cost Strength-testing one item from each batch of panels Training employees in TQM Training suppliers in TQM Identifying suppliers who commit to on-time delivery of perfect-quality materials Lost profits from lost sales due to disappointed customers Rework and spoilage Inspection of raw materials Warranty costs Savings Avoid lost profits from lost sales due to…
Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale. The marketing department indicated that the success of any product depends on the market conditions (Favorable, Neutral, or Unfavorable). The profit the company will earn also depends on the market conditions. The table below shows the probability estimated for each market condition and the profits Maximus Steel will realize within those conditions: Product Code Market Conditions Favorable P = 0.2 Neutral P = 0.7 Unfavorable P = 0.1 Wren $120,000 $70,000 ($30,000) Hawk $60,000 $40,000 $20,000 Nightingale $35,000 $30,000 $30,000 Part 1 Instructions: Compute the expected value for each alternative. What is the best option for the company?
Zodiac Sound Company manufactures audio systems, both made-to-order and mass-produced systems that are typically sold to large- scale manufacturers of electronics equipment. For competitive reasons, the company is trying to increase its manufacturing cycle efficiency (MCE) measure. As a strategy for improving its MCE performance, the company is considering a switch to JIT manufacturing. While the company managers have a fairly good feel for the costs of implementing JIT, they are unsure about the benefits of such a move, both in financial and nonfinancial terms. To help inform the ultimate decision regarding a move to a JIT system, you've been asked to provide some input. Fortunately, you've recently attended a continuing professional education (CPE) workshop on the costs and benefits of moving to JIT and therefore feel comfortable responding to management's request. Required: 3. Given the estimated data below, calculate the MCE for both the current manufacturing process and the…
Zodiac Sound Company manufactures audio systems, both made-to-order and mass-produced systems that are typically sold to large- scale manufacturers of electronics equipment. For competitive reasons, the company is trying to increase its manufacturing cycle efficiency (MCE) measure. As a strategy for improving its MCE performance, the company is considering a switch to JIT manufacturing. While the company managers have a fairly good feel for the costs of implementing JIT, they are unsure about the benefits of such a move, both in financial and nonfinancial terms. To help inform the ultimate decision regarding a move to a JIT system, you've been asked to provide some input. Fortunately, you've recently attended a continuing professional education (CPE) workshop on the costs and benefits of moving to JIT and therefore feel comfortable responding to management's request. Required: 3. Given the estimated data below, calculate the MCE for both the current manufacturing process and the…
Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin es Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 200,000 70,000 20,000 $ 110,000 58,700 14,300 $ 73,000 T-2 $ 260,000 130,000 50,000 $ 80,000…
Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 210,000 T-2 $ 268,000 72,000 22,500 $ 115,500 134,000 52,000 $ 82,000 77,000 23,000 62,000…
Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs. Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 200,000 70,000 20,000 $ 110,000 58,700 14,300 $ 73,000 T-2 $ 260,000 130,000 50,000 $ 80,000…
Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales. Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income T-1 $ 200,000 1. 2. Required % increase in sales from T-1 3. Required % increase in sales from T-1 70,000…
Great Corporations's decision to produce a new line of recreational products resulted in the need to construct either a small plant or large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium and high. Under low long-run demand, small plant size has payoff of P150 and large plant size has P50 payoff. Small plant size has payoffs of P200 in medium long-run demand. While large plant size has equal payoff with small size plant in case of medium long-run demand. In case of high long -run demand, large plant size projects a payoff of P500, which is P300 higher than that of the small plant size. 1. Construct the payoff table. 2. What is the decision to be made? 3. What is the chance event for the corporation's problem? 4. Construct a decision tree. 5. Recommend a decision based on the use of the optimistic, conservative and minimax…
Carizick Co manufactures gaming products. It has created a new games console called the QpBox which is about to be launched. Demand for the QpBox is anticipated to be high. The product life cycle of the QpBox is expected to be three years with 300,000 units forecast to be sold during its first year. Sales volumes are expected to decrease by 75,000 units in each subsequent year. Production volumes will be based on expected demand levels. The following costs for the QpBox have been determined: Design and development Pre-launch advertising Advertising in Year 2 Packaging Manufacturing cost $120m $0.5m $0.4m $3 per unit $80 per unit At a recent board meeting, the finance director said that Carizick Co should look to maximise the profitability of the QpBox over its life cycle. The marketing director made the comment that Carizick Co should focus on extending the maturity phase of the life cycle only as this stage is where the QpBox is most profitable. Contract with Zone Co Carizick Co has…