What is emv and eol approach, Cost Accounting

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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

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