Question 1 (35 Marks)

CPP plc is involved in the construction and painting of newly built apartments. CPP plc uses different colours to give the building and apartments beauty and attraction to potential viewers, buyers and investors. It is the policy of the company to mix primary colours to obtain secondary colours or upgrade the colours from one primary colour to another. The primary colours are; Red, Yellow and Blue. CPP plc can do this at one of three different colours; Red, Yellow or Blue to match Red, Yellow or Blue levels of construction and paintings contracts that the company gets. The probability of painting colours being Red is 0.25, being Yellow is 0.4 and being Blue is 0.35. The contract must be entered into before the painting quality will be known.

Colours Contract costs:	million	Colours Sales Revenue	million
Red	3.5	Red	25
Yellow	2.5	Yellow	18
Blue	1.5	Blue	7.4
Royal Docks can upgrade the colours for an additional costs as follows:
Blue to Yellow			2.2
Blue to Red			4.0
Yellow to Red			2.6

The Junior Management Accountant estimates the variable costs as follows: 40%, 35% and 30% for Red, Yellow and Blue sales revenue respectively. There is no refund available if the level of demand is overestimated and CPP plc enters into the wrong level of contract.

REQUIRED:

1. Prepare a summary that shows the forecast net margin that the company will earn for the following year for each possible outcome (10 Marks)