Homemakers Ltd. specializes in producing houses. Management observed that when the weather conditions are good, the pace at which the houses are built increases since more building work is able to take place. The operators are now trying to work out the level of home production for the coming year in order to maximize profits.

Homemakers Ltd. does not want to miss out on the opportunity to earn large profits by not being able to satisfy demand. However, it doesn't want to be left with large quantities of unsold houses at the end of the year. Management has decided to produce at one of the three levels of production to match forecast demand.

			Supply (number of houses)
	Weather	Probability	175,000	140,000	100,000
Demand	Good	0.20	$875,000	$700,000	$500,000
Average	0.50	$542,500	$700,000	$500,000
Poor	0.30	$162,500	$320,000	$500,000

Required:

a) What is the level of production based on the maximin, maximax and the minimax regret decision rule? (7 marks)

b) Prepare an expected values table and identify the level of production based on expected values. (6 marks)

Part b - (17 marks)

Homemakers Ltd uses two kinds of material to make the kitchen cupboards, hardwood and plywood. The standard information for one unit of the material is as follows:

Hardwood	30 sq. ft at $4 per sq. ft.	$120
Plywood	60 sq. ft at $6 per sq. ft	$360
		$480

In a particular period, 160 units of the cupboards were produced, using 3,000 sq. ft of hardwood and 4,380 sq. ft of plywood.

Required:

a) Calculate the material usage, mix and yield variances for each material. (11 marks)

b) Identify three standards and explain the impact they each have on employee behavior. (6 marks)