What is maximax and maximin approach, Cost Accounting

Build-Rite construction has received favorable publicity from guest appearances on a public TV home improvement program. Public TV programming decisions seem to be unpredictable, so Build -Rite cannot estimate the probability of continued benefits from it relationship with the show. Demand for home improvements next year may be either low or high. But Build-Rite must decide now whether to hire more employees, do nothing, or develop subcontracts with other home improvement contractors. Build-Rite has developed the following payoff table.

Payoffs

Demand For Home Improvements

Alternative

Low

Moderate

High

Hire

($250,000)

$100,000

$625,000

Subcontract

$100,000

$150,000

$415,000

Do nothing

$50,000

$80,000

$300,000

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

a)      Maximax

b)      Maximin

c)       Criterion of realism with coefficient of realism = 0.7

d)      Equally likely

e)      Minimax regret

Use the tables given below.

a)      Optimistic or Maximax Criterion

Payoffs

Demand For Home Improvements

 

Alternative

Low

Moderate

High

Hire

 

 

 

 

Subcontract

 

 

 

 

Do nothing

 

 

 

 

b)      Pessimistic or Maximin Criterion

Payoffs

Demand For Home Improvements

 

Alternative

Low

Moderate

High

Hire

 

 

 

 

Subcontract

 

 

 

 

Do nothing

 

 

 

 

c)       Criterion of realism with coefficient of realism = 0.7

Payoffs

Demand For Home Improvements

 

Alternative

Low

Moderate

High

Hire

 

 

 

 

Subcontract

 

 

 

 

Do nothing

 

 

 

 

d)  Equally likely or Principle of Insufficient Reason Criterion

Payoffs

Demand For Home Improvements

 

Alternative

Low

Moderate

High

 

Hire

 

 

 

 

Subcontract

 

 

 

 

Do nothing

 

 

 

 

e)      Minimax Regret Approach

Regrets

Demand For Home Improvements

 

Alternative

Low

Moderate

High

Hire

 

 

 

 

Subcontract

 

 

 

 

Do nothing

 

 

 

 

Posted Date: 4/1/2013 5:48:23 AM | Location : United States







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