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4. Assume that Wynona's sales projections come from a normal distribution and the weighted average price of the mix of guitars sold by Nelson
4. Assume that Wynona's sales projections come from a normal distribution and the weighted average price of the mix of guitars sold by Nelson is $800 per guitar. Superimpose onto the graph created for Question 2 a probability distribution of sales with an expected sales level, E(Q), of 5,000 units and a standard deviation of 1,100 units. (Be sure the left tail of the probability distribution extends beyond the breakeven level of output for the current production method.) What is the expected net operating income, E(NOI), and the probability of an operating loss with the current technology? With the proposed technology? Identify the areas of operating loss with each technology under the probability distribution. 5. Discuss how you would use your graph to explain the risk-reward implications of the greater operating leverage inherent in the cost structure expected with the proposed new production process.
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