What is emv and eol approach, Cost Accounting

Adele Weiss manages the campus flower shop. Flowers must be ordered three days in advance from her supplier in Mexico. Advance sales are so small that Weiss has no way to estimate the demand for the red roses. She buys roses for $15 per dozen and sells them for $40 per dozen. Pay-off table for the problem is given below.

 

Demand for Red Roses

Alternative

Low (25 dozen)

Medium (60 dozen)

High (130 dozen)

Do nothing

0

0

0

Order 25 dozen

300,000

300,000

300,000

Order 60 dozen

100,000

600,000

600,000

Order 130 dozen

-100,000

400,000

900,000

Probability

0.3

0.4

0.3

What is the decision based on each of the following criteria? Show work in making the decision for each criterion.

a)      EMV approach

b)      EOL approach

Use the tables given below.

a)      EMV Approach

 

Demand for Red Roses

 

Alternative

Low (25 dozen)

Medium (60 dozen)

High (130 dozen)

EMV

Do nothing

 

 

 

 

Order 25 dozen

 

 

 

 

Order 60 dozen

 

 

 

 

Order 130 dozen

 

 

 

 

Probability

0.3

0.4

0.3

 

b)      EOL Approach

 

Demand for Red Roses

 

Alternative

Low (25 dozen)

Medium (60 dozen)

High (130 dozen)

EOL

Do nothing

 

 

 

 

Order 25 dozen

 

 

 

 

Order 60 dozen

 

 

 

 

Order 130 dozen

 

 

 

 

Probability

0.3

0.4

0.3

 

Posted Date: 4/1/2013 5:46:03 AM | Location : United States







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