Reference no: EM132648780

A company plans to sell 360 000 units per annum of a new product but they uncertain of the selling price per unit and a variable cost per unit. The marketing department has provided the estimates of sales demand and their associated probabilities for each possible selling price as well as estimates of variable costs and their associated probabilities. The estimates are as follows:

Selling prices and P and VC and their respective probabilities:

Selling price R per unit                Probability

30                                                 30%
40                                                  45%
50                                                   25%

Variable costs and their respective probabilities:

Unit variable cost R per unit          Probability
12                                                   20%
16                                                      50%
20                                                     30%

Fixed costs are estimated to be R 84 000 per annum.

Required:

Question 1: Calculate the probability of earning a monthly contribution of greater than R510 000.

Question 2: Describe the attitude of a decision-makers who might choose the 'maximax; 'maximin' and the 'expected value' decision rules.