Al Ahmed LLC is a motor equipment manufacturer who is considering to bid for a government contract to supply motor pumps. Due to the extended credit period required by the government, these contracts are priced at full cost plus a 20% profit mark-up. However, as per the invitation to tender, the maximum price per unit of electrical pump has been specified as Omani Rials 150,000.

Al Ahmed’s engineering team has proposed three plans of electrical pumps for this tender, different initial design development costs and additional fixed costs for Plan 1: Omani Rials 9,200,000 ; Plan 2: Omani Rials 14,200,000; Plan 3: Omani Rials 23,000,000. However, each of these plans is structured to give the same variable cost per unit of Omani Rials 100,000, of which Omani Rials 60,000 is the material cost.

The marketing manager, using past experience, has estimated the following probabilities of acceptance of the tender by the government.

Demand	Probability
	Plan 1	Plan 2	Plan 3
500 units	70%	30%	20%
700 units	10%	55%	35%
800 units	20%	15%	45%

Required

1. Calculate the unit prices for each of the plans under each of possible demand levels.

Based on the profit under each of the possible demand levels for each plan, assess which plan should be chosen for the tender if Al Ahmed LLC is :

• Maximax
• Maximin
• Expected value

Justify your decision under each rule, showing all necessary calculations

(iii) Al Ahmed LLC has decided to choose plan 3 and bid Omani Rial 150,000 per unit of Electrical Pumps. Further, it has now been found that the material prices can increase by 15% over the originally expected levels. Determine the impact of this change in the material prices, on the expected profit of Al Ahmed LLC.

Answer rating: 100% (QA)

Required Calculate the unit prices for each of the plans under each of possible demand levels ANSWER Plan 1 500 units 9200000 100000 209200000500 Oman... View the full answer