ECTION A: COMPULSORY

QUESTION ONE

The Zambeef company is facing challenges of low supply of its beef products due to increased demand in three townships in Lusaka namely; Kuku, Mandevu and Chawama $.$Consequently, management is considering increasing production using one of the three alternatives A $($Work overtime$),$ B $($Install new Equipemnt$)$ and C $($Rent a Machine$).$The demand for the three alternatives; is $20,000,35,000$ and $65,000$ has a demand probability ratios of $0\mathrm{.}5,0\mathrm{.}3$ and $0\mathrm{.}2$ respectively. The fixed cost per month as calculated by the Finance team is given as Work Overtime$(23,000),$ Installation of the Equipment $(87,500)$ and Renting a machine $(42,000).$Subsequently the variable costs are $9,7$ and $8,$ respectively.The price per unit on all options is $20.$The Project Manager upon receipt of this information, he$/$she must do some risk analysis using the decision tree to come up with the best option to meet the market demand. Note that the given figures came up after some accounting computation process.

Required:

Compute the Risk Analysis using decision tree method with the parameters given by the Project Accountant. Calculate the following:

a$)$ Profit per demand level $(3$ marks$)$

b$)$ Expected value $(2$ marks$)$

c$)$ Total Value $(2$ marks$)$