- This topic has 14 replies, 3 voices, and was last updated 9 years ago by
.
- Posts
Shifters Haulage (SH) is considering changing some of the vans it uses to transport crates for customers. The new
vans come in three sizes; small, medium and large. SH is unsure about which type to buy. The capacity is 100 crates
for the small van, 150 for the medium van and 200 for the large van.
Demand for crates varies and can be either 120 or 190 crates per period, with the probability of the higher demand
figure being 0·6.
The sale price per crate is $10 and the variable cost $4 per crate for all van sizes subject to the fact that if the capacity
of the van is greater than the demand for crates in a period then the variable cost will be lower by 10% to allow for
the fact that the vans will be partly empty when transporting crates.
SH is concerned that if the demand for crates exceeds the capacity of the vans then customers will have to be turned
away. SH estimates that in this case goodwill of $100 would be charged against profits per period to allow for lost
future sales regardless of the number of customers that are turned away.
Depreciation charged would be $200 per period for the small, $300 for the medium and $400 for the large van.
SH has in the past been very aggressive in its decision-making, pressing ahead with rapid growth strategies. However,
its managers have recently grown more cautious as the business has become more competitive plese sir make profit table for this one on my view capacity is our choice so it would be in vertical on left side and the demand is uncertain which will be on parallel side ..i am total confuse my answer not match ..Thank You Sir …(dcember 2008 q2)It does not matter which way round you show the table – you can put the choices vertically and the uncertainty horizontally, or the other way round. As long as you label it properly then either way gets full marks, and (of course) the final answer will stay the same.
You can find the profit table in the exam answer on the ACCA website (or in your Revision Kit) – it was in the December 2008 exam.
i found the exam answer but i dont know how it com so plz can you make poft table ?
There is not much point in me typing out a complete answer when you have one already!
I will do the calculations for two of the figures in the table. You should then be able to complete the rest of them yourself.
1. The choose the small van, and demand is 120 crates:
Because the capacity of the small van is only 100 crates, then can only sell 100 crates, which gives a contribution of 100 x (10 – 4) = 600.
The depreciation on the small van is 200.
Because they are having to turn customers away, they will lose goodwill of 100.
So the profit is 600 – 200 – 100 = 300.2. They choose the large van and the demand is 190 crates.
Because the capacity of 200 is larger than the demand, the variable cost is only 3.60 (4 less 10%) per crate, and so the total contribution is 190 x (10 – 3.60) = 1216
The depreciation on the large van is 400.
So the profit is 1216 – 400 = 816You should now be able to complete the rest of the profit table yourself.
sir we multiply with 190 instead of 200 because we sale 190 as our demand is 190 is this right sir ?
Correct. The amount we sell will always be the lower of the demand (we cannot sell more than the demand) and the capacity of the van (we cannot sell more than the van will hold).
sorry one more Q when we calculate the maximax we follow the demand side or capacity side..if a i put
Demand
capacity 120 190100 160 320
150 280 150
200 300 156at 100 320
at 150 280
at 200 300Then maximax is 320 is this right sir ?
For maximal you identify the best outcome for each course of action, and then choose the course of action that gives the best/maximum of these best outcomes.
On your figures, 320 is indeed the best of the best outcomes, and therefore the decision would be to choose the small van.
However, your figures are not the correct profit outcomes for this question! I have already worked out for you that the small van and demand of 120 gives a profit of 300; and that the large van with demand of 190 gives a profit of 816 !
I don’t know where you have got your figures from.If you have not already done so, then I do suggest that you watch the free lectures on decision making under uncertainty.
Yes sir me figure are not correct i put assumed figure . 🙂 just for understanding .. sir my Q is that for maximin wo can see the figure from anyway i.e from left to right or from top to botom answer wil be same ?
In a sense you are correct, but the answer you give will be what choice to make (so on your figures above it would be the small van). The amount of 320 is not the answer – it is just the figure on which to base your answer.
Again, have you watched the free lecture?
Sir,
A Bpp question states the followingThe maximum capacity of a health centre is 50 clients per day for 350 days in the year.
Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with the client fee level per day and is estimated at different percentages of maximum capacity as follows.Client fee per day Occupancy level Occupancy as a percentage of max. capacity
$180 High 90%
$200 Most likely 75%
$220 Low 60%Variable costs are estimated at one of the three levels per client day. The high, most likely and low levels per client are $95, $85 and $70 respectively.
The range of cost levels reflect only the possible effect of the purchase prices of goods and services.
Prepare a summary which shows the budgeted contribution earned by Stow Health Centre for the year ended for each nine possible outcomes.
The answer was given as follows:
Variable cost Client fee per day
per day $180 $220 $220
$
95 1338750 1378125 1312500
85 1496250 1509375 1417500
70 1732500 1706250 1575000No of client days:
Maximum capacity = 50*350 = 17500High occupancy level = 90% of 17500 = 15750
Most likely level = 75% of 17500 = 13125
Low level = 60% of 17500 = 10500Contribution = No of client days * Contribution per day (fee – variable cost)
Sir,
I get 03 values when I calculate myself (1338750, 1509375, 1575000)
But I don’t understand how the rest have been calculated. Can you please explain it to me. I’m not sure where I went wrong. This is my answer:Client fee High ($95) Most likely ($85) Low ($70)
$
180 1338750 1246875 1155000
200 1653750 1509375 1365000
220 1968750 1771875 1575000The figures within brackets are the variable costs.
Sir, please look into this problem and advise me!!I will do the workings for a few of them – you should then be able to finish all of them yourself.
If the fee is 200, then the occupancy rate will be 75%.
So with a cost of 95, the total contribution will be 350 x 75% x 50 x (200 – 95) = 1378125
With a cost of 85, the total contribution will be 350 x 75% x 50 x (200 – 85) = 1509375
With a cost of 70, the total contribution will be 350 x 75% x 50 x (200 – 70) = 1706250If the fee is 220, then the occupancy rate will be 60%
So with a cost of 95, the total contribution will be 350 x 60% x 50 x (220 – 95) = 1312500You should now be able to finish.
What causes the confusion (and did when it was asked in the exam which was a long time ago now) was the fact that the words high, most likely, and low were used twice to mean different things.
In terms of the occupancy rate, a fee of 180 will mean occupancy of 90% – there is no uncertainly about it. Similarly a higher fee will mean lower occupancy – no uncertainty.
It is only the cost per day that is uncertain and could be any of the three.Thank you, sir!! That was a very big doubt you cleared. Thank you so much for helping all of us and especially for free, in a world where almost nothing can be done without a price!!
THANK YOU SO MUCH!!!
- You must be logged in to reply to this topic.