ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty

A company is uncertain how many units of a new product can be sold each year. To determine
its sensitivity to varying annual sales volumes, cost estimates for manufacturing the product
were found to be as follows:
Direct materials Php 5.00 per unit
Direct labor Php 11.00 per unit
Overhead Php 25,000 + Php 3.50 per unit
In addition, new equipment costing Php 160,000 will be needed. It is expected that it
would be used for 10 years with a salvage value of P30,000 at the end of that time. A market
study indicates that the product will sell Php 28.00 per unit. Money is worth 12% to the
company before taxes. Determine the rate of return for annual sales volume of 8,000 units.
 ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty

A company is uncertain how many units of a new product can be sold each year. To determine
its sensitivity to varying annual sales volumes, cost estimates for manufacturing the product
were found to be as follows:
Direct materials Php 5.00 per unit
Direct labor Php 11.00 per unit
Overhead Php 25,000 + Php 3.50 per unit
In addition, new equipment costing Php 160,000 will be needed. It is expected that it
would be used for 10 years with a salvage value of P30,000 at the end of that time. A market
study indicates that the product will sell Php 28.00 per unit. Money is worth 12% to the
company before taxes. What is the sales volume to just break even? Use AWCM.
 ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty

A company is uncertain how many units of a new product can be sold each year. To determine
its sensitivity to varying annual sales volumes, cost estimates for manufacturing the product
were found to be as follows:
Direct materials Php 5.00 per unit
Direct labor Php 11.00 per unit
Overhead Php 25,000 + Php 3.50 per unit
In addition, new equipment costing Php 160,000 will be needed. It is expected that it
would be used for 10 years with a salvage value of P30,000 at the end of that time. Money is
worth 12% to the company before taxes. Determine the rate of return for annual sales volume
of 8,000 units if the price per unit is Php 24.50.
 ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty

A company is uncertain how many units of a new product can be sold each year. To determine
its sensitivity to varying annual sales volumes, cost estimates for manufacturing the product
were found to be as follows:
Direct materials Php 5.00 per unit
Direct labor Php 11.00 per unit
Overhead Php 25,000 + Php 3.50 per unit
In addition, new equipment costing Php 160,000 will be needed. It is expected that it
would be used for 10 years with a salvage value of P30,000 at the end of that time. A market
study indicates that the product will sell Php 28.00 per unit. Money is worth 12% to the
company before taxes. If there is uncertainty as to the economic life of the equipment,
determine the rate of return if the economic life is 6 years.
 ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty

The decision matrix shown consists of cost elements. Determine the alternative to be chosen
using the following principles of choice: Laplace, minimax, minimin, minimax regret and
Hurwicz with 𝛼 = 0.3.
Alternatives States of Nature
𝑆1 𝑆2 𝑆3 𝑆4
𝐴1 P42 P53 P21 P13
𝐴2 P34 P46 P32 P19
𝐴3 P18 P60 P52 P10
𝐴4 P55 P23 P40 P38
ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty
 ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty

The decision matrix shown indicates the profit expected from four alternatives under four
states of nature. Select the preferred alternative by applying each of the following criteria:
Laplace, maximin, maximax, minimax regret and Hurwicz with 𝛼 = 0.6.
States of Nature
Alternatives
𝑆1 𝑆2 𝑆3 𝑆4
𝐴1 P20 P15 P26 P31
𝐴2 P18 P13 P10 P29
𝐴3 P11 P32 P18 P23
𝐴4 P42 P37 P22 P35
ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty
 ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty

The decision matrix shown indicates the profit expected from five investments under four
states of nature. Select the preferred investment by applying each of the following criteria:
Laplace, maximin, maximax, minimax regret and Hurwicz with 𝛼 = 0.7.
States of Nature
Alternatives
𝑆1 𝑆2 𝑆3 𝑆4
𝐼1 P 86 P 65 P 71 P 52
𝐼2 P 91 P 93 P 66 P 77
𝐼3 P 68 P 53 P 90 P 81
𝐼4 P 76 P 69 P 88 P 56
𝐼5 P 54 P 74 P 67 P 87
ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty
 ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty

The decision matrix shown indicates the cost expected from five investments under four
states of nature. Select the preferred investment by applying each of the following criteria:
Laplace, minimax, minimin, minimax regret and Hurwicz with 𝛼 = 0.4.
States of Nature
Alternatives
𝑆1 𝑆2 𝑆3 𝑆4
𝐼1 P 86 P 65 P 71 P 52
𝐼2 P 91 P 93 P 66 P 77
𝐼3 P 68 P 53 P 90 P 81
𝐼4 P 76 P 69 P 88 P 56
𝐼5 P 54 P 74 P 67 P 87
ENGGECON – Lesson 12: Decisions Recognizing Risk and Decisions Admitting Uncertainty