Butterwords is considering the launch of a new product which would involve the distribution of books throughout Africa. They are uncertain how much profit can be generated, but has undertaken research with the following results:

Profit (N$’000)

(4000) 0.3

2000 0.2 5000 0.4 7000 0.1

REQUIRED:

a) Calculate the standard deviation of the probability distribution.

b) Advise management on whether the project should be accepted or not.

PART B

Probability

Metal manufacturing has to choose between two alternative to increase its production capacity. Data gathered is as follows:

Alternative Expected return Standard deviation A 20% 7

B 22% 9,5

REQUIRED:

c) Advise management on which alternative to choose. If it is assumed that the company is risk-averse. (5) d) Explain what a decision tree is and what purpose it serves. (2)

QUESTION 3 (7 Marks)

A company manufactures two products (X and Y) in one of its factories. The manufacturer wants to determine the production mix which will maximize profit. The profit on product X is $25 and $50 on product Y. A maximum that can be sold for product X is 50 and product Y 40. Production takes place in two departments. The finishing department has a capacity of 300 hours while the assembly department has a capacity of 480 hours. The manufacturing times are as follows:

The manufacturing times are as follows:

Product X Product Y

REQUIRED:

Finishing

5 Hours 6 Hours

Assembly

3 Hours 6 Hours

(5) (2)

 a) Formulate a linear programming model for this problem?

Answer rating: 100% (QA)

To formulate a linear programming model for the given problem lets define the decision variables obj... View the full answer