Ban umbles Ltd is a family-run organic honeybee farming business. The bees are guided to col-...

     

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Ban umbles Ltd is a family-run organic honeybee farming business. The bees are guided to col- lect pollen and nectar from organically produced plants and flowers that are grown fertilizer free. The nectar carried on the bee's stomach is placed into the cells of the honeycomb, which becomes honey. If the honey collected is of a high grade, the honey can be sold for £36 per case. whereas if the honey is of medium grade, it can be sold for £28 per case. The lowest grade of honey can be sold for £18 per case. If it is not sold on the same day, the high quality honey will be reclassified and sold as medium quality on the market, which costs an extra £8 to reclassify, while the medium quality will be reclassified and sold as low quality, which costs an extra £6. The cost for Bumbles Ltd to extract, package and market the honey for the high, medium and low grades are £20, £12 and £8 respectively. The daily quantity of cases sold and the number of days that had these daily sales levels is detailed below. This information is based on a study carried out over a period of 344 days. DAILY QUANTITY OF CASES SOLD Low Medium High Jan 12 8 9 Jul 13 10 7 Feb 10 9 8 Aug 11 12 6 Number of days sold Mar 10 10 9 Sep 10 11 8 Apr 6 13 6 Oct 7 12 9 May 11 12 7 Nov 10 10 9 Low Medium High Low demand = 20 cases, Medium demand = 40 cases and High demand = 60 cases Jun 10 13 6 Dec 11 14 5 Practical task Use a spreadsheet to complete the following task: 1 Prepare a table that shows what the forecast net profit could be for each possible outcome. Research and presentation Using PowerPoint, provide advice to Bumble Ltd that will enable them to farm and produce the ideal amount of honey cases for each of the following scenarios: 2 If Bumble Ltd was to follow a risk-seeking strategy where they maximized their expected values. 3 If Bumble Ltd was to follow a maximin or maximax strategy. 4 If Bumble Ltd was to follow a minimax regret strategy. REVIEW PROBLEMS 12.11 Intermediate. Darwin uses decision tree analysis in order to evaluate potential projects. The company has been looking at the launch of a new product which it believes has a 70 per cent probability of success. The company is, however, considering undertaking an advertising campaign costing £50,000, which would increase the probability of success to 95 per cent. If successful, the product would generate income of £200,000, otherwise £70,000 would be received. What is the maximum that the company would be prepared to pay for the advertising? (a) £32,500 (b) £29,000 (c) £17,500 (d) £50,000 ACCA Paper 1.2 Financial Information for Management 12.12 Intermediate. A company uses decision tree analysis to evaluate potential options. The management accountant for the company has established the following: Build new premises Cost £1,000,000 Upgrade old premises Cost = ? 0.8 0.2 0.7 0.3 Cash flows from sales revenue High sales = £2,000,000 Low sales = £1,000,000 High sales = £2,000,000 Low sales = £1,000,000 Ban umbles Ltd is a family-run organic honeybee farming business. The bees are guided to col- lect pollen and nectar from organically produced plants and flowers that are grown fertilizer free. The nectar carried on the bee's stomach is placed into the cells of the honeycomb, which becomes honey. If the honey collected is of a high grade, the honey can be sold for £36 per case. whereas if the honey is of medium grade, it can be sold for £28 per case. The lowest grade of honey can be sold for £18 per case. If it is not sold on the same day, the high quality honey will be reclassified and sold as medium quality on the market, which costs an extra £8 to reclassify, while the medium quality will be reclassified and sold as low quality, which costs an extra £6. The cost for Bumbles Ltd to extract, package and market the honey for the high, medium and low grades are £20, £12 and £8 respectively. The daily quantity of cases sold and the number of days that had these daily sales levels is detailed below. This information is based on a study carried out over a period of 344 days. DAILY QUANTITY OF CASES SOLD Low Medium High Jan 12 8 9 Jul 13 10 7 Feb 10 9 8 Aug 11 12 6 Number of days sold Mar 10 10 9 Sep 10 11 8 Apr 6 13 6 Oct 7 12 9 May 11 12 7 Nov 10 10 9 Low Medium High Low demand = 20 cases, Medium demand = 40 cases and High demand = 60 cases Jun 10 13 6 Dec 11 14 5 Practical task Use a spreadsheet to complete the following task: 1 Prepare a table that shows what the forecast net profit could be for each possible outcome. Research and presentation Using PowerPoint, provide advice to Bumble Ltd that will enable them to farm and produce the ideal amount of honey cases for each of the following scenarios: 2 If Bumble Ltd was to follow a risk-seeking strategy where they maximized their expected values. 3 If Bumble Ltd was to follow a maximin or maximax strategy. 4 If Bumble Ltd was to follow a minimax regret strategy. REVIEW PROBLEMS 12.11 Intermediate. Darwin uses decision tree analysis in order to evaluate potential projects. The company has been looking at the launch of a new product which it believes has a 70 per cent probability of success. The company is, however, considering undertaking an advertising campaign costing £50,000, which would increase the probability of success to 95 per cent. If successful, the product would generate income of £200,000, otherwise £70,000 would be received. What is the maximum that the company would be prepared to pay for the advertising? (a) £32,500 (b) £29,000 (c) £17,500 (d) £50,000 ACCA Paper 1.2 Financial Information for Management 12.12 Intermediate. A company uses decision tree analysis to evaluate potential options. The management accountant for the company has established the following: Build new premises Cost £1,000,000 Upgrade old premises Cost = ? 0.8 0.2 0.7 0.3 Cash flows from sales revenue High sales = £2,000,000 Low sales = £1,000,000 High sales = £2,000,000 Low sales = £1,000,000

Answer rating: 100% (QA)

1 Cases sold High Medium Low Profit 360 280 180 2 Bumbles Ltd should follow a riskseeking strategy where they maximize their expected values by selling the honey on the same day it is collected This w... View the full answer