An auditee is planning the introduction of a new product line. Alternative production schedules have been narrowed down to three possibilities: 10,000 units, 20,000 units, or 30,000 units. Production costs total $3 per unit and retail value is $5 per unit. The probability distribution for sales is as follows: a 10 percent likelihood of sales of 10,000 units, a 60 percent likelihood of sales of 20,000 units, and a 30 percent likelihood of sales of 30,000 units.

Required:

a. Construct a payoff table from this data.

b. Compute the expected value of each of the alternative production schedules.

c. Which schedule should be selected?

d. What amount should the entity be willing to spend for market studies that could improve the estimate of market demand? Support your response.