Humber Bakery needs to decide how many units of its new Rexdough bread (nicknamed Rex) to bake
Question:
Humber Bakery needs to decide how many units of its new Rexdough bread (nicknamed Rex) to bake at the start of each day. Because the bakery prides itself on being the maker of the freshest premium bread in town, units that don't sell at the end of the day are discarded and considered a loss. Each Rexdough loaf costs $1.18 to produce and sells for $4.25. Humber's goal is to maximize daily gross profit. The bakery's daily production system is set up as follows: Production system Light production (26,000 loaves) Moderate production (32,000 loaves) Heavy production (40,000 loaves) Humber Bakery is unsure of Rex's demand but believes that one of the following states of nature (outcomes) will occur: States of Nature Low Demand (20,000 loaves) Medium Demand (30,000 loaves) High Demand (40,000 loaves) Note: The bakery cannot sell more than it produces. For example, if the production level is moderate (32,000) and demand is low (20,000), the bakery will sell only 20,000 units but will incur the costs of producing 32,000 units. The corresponding gross profit will be $4.25 (20,000) - $1.18 (32,000) = $47,240.
PART A Calculate the payoff (daily gross profit, in dollars) for each production/demand level combination
Cost Management Accounting and Control
ISBN: 978-0324559675
6th Edition
Authors: Don R. Hansen, Maryanne M. Mowen, Liming Guan