DR was founded on the idea that many families do not have a sufficient amount of vacation time to drive long distances for their vacations. Surveys, however, indicate that there is considerable interest in family vacations. DR entered into an agreement with Mobile Homes to supply mobile homes for family vacations to deliver a mobile money on Saturday for K300 a week. Mobile Homes must know early Saturday morning how many mobile homes to deliver to DR for the forthcoming week as they have other customers to supply.

This presents a problem as DR will have some reservations on Saturday but indications are that many families do not make them but instead prefer to examine the facilities before making a decision. An analysis of the various costs involved indicated that K350 a week should be charged for a mobile home with all privileges the basic problem is how many mobile homes to order each week. Should DR order 10(considered the minimum), 11, 12, 13 or 14(considered the maximum)?

Any decision made solely on the information in the payoff table would ignore , however, the valuable experience that DR has had in the past four years(about 200 weeks) actually operating. Their records showed that they always had nine advance reservations. Also they never had a demand for 15 or more homes. The occupancy of 10, 11, 12, 13 or 14 homes, in part, represented families who drove in and inspected the facilities before renting. A frequency distribution showing the number of weeks 10, 11 ...14 mobile homes were rented during the 200- week period is found in the following table.

# of Mobile homes rented Number of weeks

10 26

11 50

12 60

13 44

14 20

200

Required:

1. Construct a payoff table.

[04 Marks]

1. Determine the expected pay-offs, and arrive at a decision.

[04 Marks]

1. Set up an opportunity loss table.

[04 Marks]

1. Compute the expected opportunity losses, and arrive at a decision.

[04 Marks]

1. What price would you recommend he pays to acquire the additional relevant information?

[04 Marks]