inconsistent framing attempt Ralph manages a two product enterprise. Product x sells for 400 dollars per unit and product y sells for 600 per unit. Estimated manufacturing costs are as follows:

direct material direet labor overhead 100 80 160 150 120 240 Overhead is applied to each product on the basis of direet labor dollars (at a rate of 200%). At the firm-wide level, overhead is in fact budgeted via the following linear approximation:

overhead = 54,000 + .5DL$

where DL$ denotes direet labor dollars. In addition, marketing eosts (all variable)

average 30 per unit of x and 90 per unit of y.

The firm employs two production departments. The first has a capacity of 400 direct labor hours and the second has a capacity of 500 direct labor hours. Product x uses one hour in each department, while product y uses one hour in the first department and two hours in the seeond department;

x+ y s 400 and x+2y s 500 therefore describe the capacity restrictions.

a] Determine an optimal output schedule for Ralph.

b] Ralph is worried about the overhead function in the above problem. To think some more about this, assume actual overhead is one of the following two models, with equal probability:

overhead = 63,000 + .25DL$; or overhead = 45,000 + .75DL$.

Absent any additional information, Ralph will implement the schedule determined in part [a] above. How much would Ralph pay for a eost study that will perfectly reveal which of the two overhead models is in faet eorrect?

el Ralph now tries another excreise. Instead of worrying about the overhead estimate, the estimates of available eapaeity in the two departments are ealled into question. Suppose department two's estimate is correet, but the estimate for department one is ambiguous. With equal probability, it will be either 350 or 450 hours. I want to ask you how much Ralph would pay to leam the actual capaeity.
But this eannot be answered without additional speeification. Why can we not answer this question?AppendixLO1