QUESTION FOUR

Sao Limited makes three products, all of which use the same machine, which is available for 60,000 hours per period.

The standard costs of the product, per unit, are

	Product X	Product Y	Product Z
Direct materials	100	70	90
Direct labour
Machinists (6 per hour)	30	18	54
Assemblers (6 per hour)	36	40	42
Selling price per unit	215	147	220
Maximum demand (units)	3500	2000	5500

Fixed costs are 250,000 per period

Required:

1. Calculate the deficiency in machine hours for the next period.

(5 marks)

2. Determine the production plan that will maximise Sao Ltd.s profit for the next period.

(14 marks)

3. Calculate the profit that will result from your recommended production plan.

(6 marks)

[TOTAL: 25 MARKS]

QUESTION FIVE

A decision-maker is choosing between three alternative marketing strategies A, B and C. The outcome of these strategies depends on whether the market condition will be weak, medium or strong. The possible outcomes of the respective strategies in the different possible market conditions, expressed in thousands of profit are as follows:

	Strategy
Market	A	B	C	Probability of market condition
Weak	20.00	80.00	10.00	0.20
Medium	40.00	70.00	100.00	0.50
Strong	50.00	-10.00	40.00	0.30

Required:

1. What strategy should be adopted if the decision-maker acts on expected value?

(4 marks)

2. What strategy should be adopted if the decision-maker acts on standard deviation?

(10 marks)

3. What strategy should be adopted if the decision-maker acts on the maximax rule?

(2 marks)

4. What strategy should be adopted if the decision-maker acts on the minimax rule?

(2 marks)

5. What strategy should be adopted if the decision-maker acts on the minimax regret rule?

(7 marks)

[TOTAL 25 MARKS]