A health centre specializes in the provision of sports/exercise and medical/dietary advice to clients. The service is provided on a residential basis and clients may stay for whatever number of days to suit their needs. Budgeted estimates for the year ending 30 June 2020 are as follows: (i) The maximum capacity of the centre is 50 clients per day for 350 days in a year. (ii) Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with the client fee level per day and is estimated at different percentages of maximum capacity as follows: Client fee per day Occupancy level Occupancy as percentage of maximum capacity RM180 High 90% RM200 Most likely 75% RM220 Low 60% (iii) Variable costs are also estimated at one of three levels per client day. The high, most likely and low levels per client day are RM95, RM85 and RM70 respectively. The range of cost levels reflects only the possible effect of the purchase prices of goods and services. Required : 1.State the client fee strategy for the year to 30 June 2020 which will result from the use of each of the following decision rules. (i) Maximax. (ii) Maximin. (iii) Minimax regret. Your answer should explain the basis of operation of each rule. Use the information from your answer to (a) as relevant and show any additional working calculations as necessary. 2.“A fundamental characteristic of all decision problems is that the outcome is uncertain. Since the data are estimates of future events, it is not possible to predict decision outcomes with the perfect accuracy”. In relation to the above statement, briefly discuss the application of the following methods to reduce the effects of uncertainty: (i) Sensitivity Analysis (ii) Decision Tree with probabilities.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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A health centre specializes in the provision of sports/exercise and medical/dietary advice to clients. The service is provided on a residential basis and clients may stay for whatever number of days to suit their needs. Budgeted estimates for the year ending 30 June 2020 are as follows:
(i) The maximum capacity of the centre is 50 clients per day for 350 days in a year. (ii) Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with the client fee level per day and is estimated at different percentages of maximum capacity as follows:
(iii) Variable costs are also estimated at one of three levels per client day. The high, most likely and low levels per client day are RM95, RM85 and RM70 respectively.
The range of cost levels reflects only the possible effect of the purchase prices of goods and services.
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1.State the client fee strategy for the year to 30 June 2020 which will result from the use of each of the following decision rules. (i) Maximax. (ii) Maximin. (iii) Minimax regret.
Your answer should explain the basis of operation of each rule. Use the information from your answer to (a) as relevant and show any additional working calculations as necessary.
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2.“A fundamental characteristic of all decision problems is that the outcome is uncertain. Since the data are estimates of future events, it is not possible to predict decision outcomes with the perfect accuracy”.
In relation to the above statement, briefly discuss the application of the following methods to reduce the effects of uncertainty:
(i) Sensitivity Analysis (ii) Decision Tree with probabilities.
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