Reference no: EM133185125

Question - Biokinetiks Health Centre specializes in the provision of sports/exercise and medical/dietary advise to clients.

The service is provided on a residential basis and clients stay for whatever number of days that suits their needs.

Budgeted estimates for the next year ending 30 June are as follows:

The maximim capacity of the Centre is 50 clients per day for 350 days in the year

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

N$180 High 90%

N$200 Most likely 75%

N$220 Low 60%

Variable costs are also estimated at one of three levels per client day. The high, most likely and low levels per client day are N$95, N$85 and N$70 respectively. The range of cost levels reflect only the possible effect of the purchase prices of goods and services.

Required -

a) Prepare a summary which shows the budgeted contribution earned by Biokinetiks Health Centre for the year ended 30 June for each of the possible outcomes.

b) State the client fee strategy for the next year to 30 June which will result from the use of the maximax decision rule. Do not explain the basis of operation of the decision rule. Use the information from your answer to (a) as relevant and show any additional working calculation as necessary.

c) State the client fee strategy for the next year to 30 June which will result from the use of the maximin decision rule. Do not explain the basis of operation of the decision rule. Use the information from your answer to (a) as relevant and show any additional working calculation as necessary.

d) State the client fee strategy for the next year to 30 June which will result from the use of the. Do not explain the basis of operation of the minimax regret decision rule. Use the information from your answer to (a) as relevant and show any additional working calculation as necessary.

e) The probability of variable cost levels occurring at the high, most likely and low levels provided in the question are estimated as 0.1, 0.6 and 0.3 respectively. Using the information available, determine the client fee strategy which will be chosen where maximization of expected value of contribution is used as the decision basis.