Maximax – NBC Institute

PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques

Construct payoff tables, determine profitable print numbers, and discuss decision rules for football program sales.

Question

The local football club has asked for your advice on the number of programmes that should be printed for each game. The cost of printing and production of programmes for each game, as quoted by the local printer, is ₦1,000,000 plus ₦400 per copy. Advertising revenue which has been agreed for the season represents ₦800,000 for each game.

Programmes are sold for ₦150 each. A review of sales during the previous seasons indicates that the following pattern is expected to be repeated during the coming season of 50 games:

Number of programmes sold	Number of games
10,000	5
20,000	20
30,000	15
40,000	10

Programmes not sold at the game are sold as waste paper to a paper manufacturer at ₦100 per copy.

Assuming that the four quantities listed are the only possibilities, you are required to:

a. Prepare a payoff table. (6 Marks)

b. Determine the number of programmes that would provide the highest profit if a constant number of programmes were to be printed for each game. (4 Marks)

c. Explain why you should buy 30,000 or 40,000 copies, assuming one of these is the most profitable quantity, despite the fact that the most probable sales are 20,000 copies per game. (2 Marks)

d. Calculate the profit which would arise from a perfect forecast of the numbers of programmes which would be sold at each game. (4 Marks)

e. Discuss the major limitations of the expected value criterion in decision making. (4 Marks)

Answer

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Tags: Decision Analysis, Expected Value Criterion, Maximax, Minimax, Payoff table, Profit Calculation
Level: Level 2

Topic: Decision-making techniques
Series: MAY 2023

PM – May 2023 – L2 – SA – Q1 – Working Capital Management

Calculate Vestapricy Ltd's cost of goods sold, analyze the working capital cycle, and apply decision rules for inventory management in Owerri.

Question

Vestapricy and Company Limited is a manufacturing outfit located in Port Harcourt. It produces a tracking device that is attached to motor vehicles. The device is designed to help locate the whereabouts of stolen motor vehicles within the country. The company’s capital (or cash operating cycle) is the length of time between the payment for purchased materials and the receipt of payment from selling the goods made with the materials.

The table below gives information extracted from the annual accounts of Vestapricy and Company Limited for the past three years.

Extracts from Vestapricy and Company Limited annual accounts for 31st December 2020 to December 2022:

	2020	2021	2022
Inventory:
Raw materials	108,000	145,800	180,000
Work in progress	75,600	97,200	93,360
Finished goods	86,400	129,600	142,875
Purchases	518,400	702,000	720,000
Sales	864,000	1,080,000	1,188,000
Trade receivables	172,800	259,200	297,000
Trade payables	86,400	105,300	126,000

Other information is as follows:

All purchases and sales are on credit.
Direct wages:
- 2021: ₦300,000
- 2022: ₦250,000
Production expenses:
- 2021: ₦72,600
- 2022: ₦171,995
The company’s policy is that any data that will be used from the statement of financial position in determining the working capital cycle period will be average based.

Required:

a.
i. Compute the cost of goods sold for 2021 and 2022. (3 Marks)
ii. Calculate the length of the working capital cycle (assuming 365 days in the year) for 2021 and 2022. (7 Marks)
iii. List the actions that the management of the company might take to reduce the length of the working capital cycle. (5 Marks)

b. In 2023, the company (Vestapricy) decided to open a new small apple shop in Owerri to be managed by a shopkeeper. The shopkeeper is deciding on the number of boxes of special apples it hopes to buy each day. A box of apples earns a contribution of ₦400 and costs ₦250.

Demand for apples is uncertain and could vary from 30 boxes to 10 boxes. Any apple that is purchased but not sold will be thrown away at the end of the day.

The shopkeeper has decided that he will buy 10 boxes, 20 boxes or 30 boxes each day, and these are the only three options he wants to consider.

Required:

i. Construct the Pay-off table for this business in Owerri. (7 Marks)
ii. How many boxes should the storekeeper purchase if the decision is based on:

The Maximax decision rule.
The Maximum decision rule.
The Minimax regret decision rule.
Give reasons for your decisions. (8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Decision Rules, Maximax, Minimax, Pay-off Table, Working Capital, Working Capital Cycle
Level: Level 2

Topic: Working Capital Management
Series: MAY 2023

PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques

Construct payoff tables, determine profitable print numbers, and discuss decision rules for football program sales.

Question

Programmes are sold for ₦150 each. A review of sales during the previous seasons indicates that the following pattern is expected to be repeated during the coming season of 50 games:

Number of programmes sold	Number of games
10,000	5
20,000	20
30,000	15
40,000	10

Programmes not sold at the game are sold as waste paper to a paper manufacturer at ₦100 per copy.

Assuming that the four quantities listed are the only possibilities, you are required to:

a. Prepare a payoff table. (6 Marks)

b. Determine the number of programmes that would provide the highest profit if a constant number of programmes were to be printed for each game. (4 Marks)

c. Explain why you should buy 30,000 or 40,000 copies, assuming one of these is the most profitable quantity, despite the fact that the most probable sales are 20,000 copies per game. (2 Marks)

d. Calculate the profit which would arise from a perfect forecast of the numbers of programmes which would be sold at each game. (4 Marks)

e. Discuss the major limitations of the expected value criterion in decision making. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Decision Analysis, Expected Value Criterion, Maximax, Minimax, Payoff table, Profit Calculation
Level: Level 2

Topic: Decision-making techniques
Series: MAY 2023

PM – May 2023 – L2 – SA – Q1 – Working Capital Management

Calculate Vestapricy Ltd's cost of goods sold, analyze the working capital cycle, and apply decision rules for inventory management in Owerri.

Question

The table below gives information extracted from the annual accounts of Vestapricy and Company Limited for the past three years.

Extracts from Vestapricy and Company Limited annual accounts for 31st December 2020 to December 2022:

	2020	2021	2022
Inventory:
Raw materials	108,000	145,800	180,000
Work in progress	75,600	97,200	93,360
Finished goods	86,400	129,600	142,875
Purchases	518,400	702,000	720,000
Sales	864,000	1,080,000	1,188,000
Trade receivables	172,800	259,200	297,000
Trade payables	86,400	105,300	126,000

Other information is as follows:

All purchases and sales are on credit.
Direct wages:
- 2021: ₦300,000
- 2022: ₦250,000
Production expenses:
- 2021: ₦72,600
- 2022: ₦171,995
The company’s policy is that any data that will be used from the statement of financial position in determining the working capital cycle period will be average based.

Required:

Demand for apples is uncertain and could vary from 30 boxes to 10 boxes. Any apple that is purchased but not sold will be thrown away at the end of the day.

The shopkeeper has decided that he will buy 10 boxes, 20 boxes or 30 boxes each day, and these are the only three options he wants to consider.

Required:

i. Construct the Pay-off table for this business in Owerri. (7 Marks)
ii. How many boxes should the storekeeper purchase if the decision is based on:

The Maximax decision rule.
The Maximum decision rule.
The Minimax regret decision rule.
Give reasons for your decisions. (8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Decision Rules, Maximax, Minimax, Pay-off Table, Working Capital, Working Capital Cycle
Level: Level 2

Topic: Working Capital Management
Series: MAY 2023

Question Tag: Maximax

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PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques

Construct payoff tables, determine profitable print numbers, and discuss decision rules for football program sales.

PM – May 2023 – L2 – SA – Q1 – Working Capital Management

Calculate Vestapricy Ltd's cost of goods sold, analyze the working capital cycle, and apply decision rules for inventory management in Owerri.

PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques

Construct payoff tables, determine profitable print numbers, and discuss decision rules for football program sales.

PM – May 2023 – L2 – SA – Q1 – Working Capital Management

Calculate Vestapricy Ltd's cost of goods sold, analyze the working capital cycle, and apply decision rules for inventory management in Owerri.

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PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques

Construct payoff tables, determine profitable print numbers, and discuss decision rules for football program sales.

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PM – May 2023 – L2 – SA – Q1 – Working Capital Management

Calculate Vestapricy Ltd's cost of goods sold, analyze the working capital cycle, and apply decision rules for inventory management in Owerri.

You're reporting an error for "PM – May 2023 – L2 – SA – Q1 – Working Capital Management"

PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques

Construct payoff tables, determine profitable print numbers, and discuss decision rules for football program sales.

You're reporting an error for "PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques"

PM – May 2023 – L2 – SA – Q1 – Working Capital Management

Calculate Vestapricy Ltd's cost of goods sold, analyze the working capital cycle, and apply decision rules for inventory management in Owerri.

You're reporting an error for "PM – May 2023 – L2 – SA – Q1 – Working Capital Management"

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