Mini assembles and sell strings of pearls at her waterfront shop on Galveston Island, Texas. One day Bud, a seafaring man unknown to Mini, appears in her shop offering to sell a bag of 1,000 pearls at a bargain price. Mini, puts the contents through her count and size machine to confirm the number and size, but she is apprehensive about the quality of the pearls. Bud claims that the 1,000 are high quality, he appears to be trustworthy, but he may not stick around if the pearls are later discovered to be bad. Mini makes some quick mental calculations of the costs associated with buying poor quality pearls and the benefit of the bargain price. Based on these calculations, Mini decides on a Break Even criteria for the purchase. If she can be Reasonably Assured (i.e. 95% confident) that there are less than 30 Bad Pearls (out of 1,000), then she would like to purchase the pearls at Buds offering price. Mini is unwilling to take a loss on the transaction.

Questions: 1. Define relevant information? Identify the relevant information for Minis decision? 2. Identify three ways that Mini might become Reasonably Assured that Buds quality claim is reliable? (Assurance may be financial or non-financial) 3. Who will bear the cost of obtaining Minis confidence? In other words, who pays for the assurance that the pearls are high quality? Please explain

Now suppose that the person appearing at Minis Pearl Dock is Alex Keaton, the proprietor of an established Galveston pearl importer, Keatons Asian Pearl Supply. Alex offers a bag of pearls equivalent to Buds at the same price (a special introductory price) and a long-term contract guaranteeing a defect rate < 1%.

Questions: 4. What additional assurance options or combinations that are now available through Alex Keaton? 5. Which seller would or should receive a higher (net) price for his bag of pearls (Bud or Alex)? Support your answer. 6. What does this tell you about the costs and benefits of Assurance?