Math/Physic/Economic/Statistic Problems
1.Determine the two capacity options that Mr. House is considering (clearly
describe each capacity option and identify the fixed cost and the variable cost
for each scenario).
2. Calculate the indifference point for the two capacity options.
3. Calculate the break-even point
4. Draw the decision tree for the capacity decision
5. If Mr. House does not invest in the roaster, do you think he needs to be
concerned about the various demand scenarios? Why?
6. What are the expected values for the two capacity options? (do the
calculations for each option). After you completed the calculations, update
the decision tree to present your results.
a. Note that for the second option (investing on a roaster), any demand
beyond 14,400 pounds will only generates $2.9 revenue per pound.
7. Describe the best and worst financial result for Mr. House.
8. Describe other considerations for Mr. House’s decision making including
strategic flexibility and core competency.