ACCSEEL'SIT Performance Management BL Question {PYQ Jan 2013} Topic 2.4: Risk Es Uncertainty Brooke Ltd. is a company that makes rosewood tea-table {in units) that is used for house decoration. The company has found that when the economic conditions are favorable: the demand for the teatables will increases since more people can afford it. In the year 201?, the economic condition in Malaysia was good and the demand for the teatables was so great that Brooke Ltd was unable to meet demand. The company is now trying to plan their production level of tea tables for the year 2018 in order to maximize its profits. The company does not want to miss out on the opportunity to earn good profits by running out of units. However: it doesnit want to be le with large quantities of unsold units at the end of year 2018; since its quality can be affected and so it has to be soldoff of at a much lower price. The company has received the following estimates about the probable economic conditions and the corresponding demand levels for the year 2013. Economy Probability Demand Boom 50% 1000 units Stable 20% 4.000 units Down 30% 2:000 units Each unit of teatable can be sold for 35 00 and the variable costs are 3230 to produce. If any tea tables are unsold at the end of the year, a unit will be sold for a lower price of 3200. Any unsatisfied demand will incur an administration cost of $50.-"unit. Brooke Ltd has decided to produce at one of the three levels of production to match forecast demand. It now has to decide on a level of production that will maximize its profits. Required: a] Construct a contribution payoff table to show all possible outcomes. (8 marks) b) Decide the level of production the company should choose based on decision rules of: i. Maxintin {2 mark) ii. Maxintax {2 mark) iii. Expected Value {4 mark} c) Describe the imaxiinin\" and 'maxirnax" decision rules: explaining when they migtt be used and the attitudes of the decision makers who migrt use them (4 marks)