Stow Health Centre specialises in the provision of sports/exercise and medical/dietary advice to clients

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Stow Health Centre specialises in the provision of sports/exercise and medical/dietary advice to clients. The service is provided on a residential basis and clients stay for whatever number of days suits their needs.

Budgeted estimates for the year ending 30 June 20X1 are as follows.

a) The maximum capacity of the centre is 50 clients per day for 350 days in the year.

b) 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.

c) Variable costs are also estimated at one of three levels per client day. The high, most likely and low levels per client day are $95, $85 and $70 respectively.

The range of cost levels reflects only the possible effect of the purchase prices of goods and services.

Required

(a) Prepare a summary which shows the budgeted contribution earned by Stow Health Centre for the year ended 30 June 20X1 for each of nine possible outcomes.

(b) State the client fee strategy for the year to 30 June 20X1 which will result from the use of each of the following decision rules.

(i) Maximax

(ii) Maximin

(iii) Minimax regret

Your answer should explain the basis of operation of each rule. Use the information from your answer to (a) as relevant and show any additional working calculations as necessary.

(c) The probabilities 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 maximisation of expected value of contribution is used as the decision basis.

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Stow Health Centre specialises in the provision of sports/exercise and medical/dietary advice to… 1 answer below » was first posted on June 29, 2020 at 9:28 pm.