PROBLEM 4 CVP Analysis under uncertainty: Answer the below questions. Be sure to include all of your calculations. If you need to make some assumptions, please clearly identify any assumptions. This problem is best worked in Excel. The following problem is adapted from problem 3-30: Cover Rugs is holding a 2-week carpet sale at Joshs Club, a local warehouse store. Cover Rugs plans to sell carpets for $950 each. The company will purchase the carpets from a local distributor for $800 each, with the privilege of returning any unsold units for a full refund. Joshs Club has offered Cover Rugs two payment alternatives for the use of space.

Option 1: A fixed payment of $7,500 for the sale period

Option 2: 10% of total revenues earned during the sale period Assume Cover Rugs will incur no other costs.

A. Cover Rugs is uncertain about the number of rugs that will be sold during the 2-week sale, but must commit to a payment option prior to the start of the sale. Cover Rugs believes that number of rugs sold follows a normal distribution with a mean of 90 and a standard deviation of 45. Given this information, which payment option should Cover Rugs choose? Dont forget to show your work.

B. If Cover Rugs goes with the payment option chosen in part A, what is the probability that Cover Rugs breaks even?

C. Cover Rugs ended up selling 75 rugs during the sale. Briefly explain the saying a good decision does not necessarily equal a good outcome.