Keytone Co - BPP Kit Mock exam 4 (Q32)

SScarlett2y ago

Hi, I am looking at question called Keytone Co from the BPP Kit Mock exam 4 (Q32) which is to construct a payoff table. I understand how the workings of the payoff table in part (a) have been worked out, I am just confused with the "Expected value (EV) of profit $". For 3000 units its $70,110 for 3500 units it's $78,385 and for 4000 units is $77,545. Could you help me understand how this has been worked out please? Thanks

IAW3005Tutor2y ago#1

https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f5/examinersreports/PM%20SD22%20Examiner%20Report.pdf Question 2 is Keytone Have a look at the examiners article Let me know if you still need help

SScarlett2y ago#2

Hi, thanks I did read that article before posting my question. I still don’t understand how the “EVs of profit” have been worked out in the payoff table, could you help me please?

IAW3005Tutor2y ago#3

I will show you an example: SALES 102,300 (3000 * 34.10) SP - ADMIN = 35-0.9 VC 30750 (3000 * 10.25) DM + LAB + VC = 6.2+2.7+1.35 STE FC 1440 (3000/500 = 6 * 240) TOTAL MAX 3000 = 70110 CAN YOU HAVE A LOOK AT IT AGAIN NOW

SScarlett2y ago#4

Thanks, I understand the payoff table workings it just the TOTAL of "Expected value (EV) of profit" I just don't understand where those totals came from of 70,110, 78,385 and 77,545, have they used the probabilities or have they used an average? - Either way I just can't get it to those amounts.

IAW3005Tutor2y ago#5

You take the profit at Max positions Where supply equals demand That gives you 70110 for demand 3000; 81795 for 3500 and 85480 for 4000 Then times by the probability gives you the EV with perfect information Compare to EV from part a

SScarlett2y ago#6

Thanks for your help :)

IAW3005Tutor2y ago#7

You are welcome

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