MGMT 4103-Business Decision Analysis Module 3-Decision Making Techniques -Compre

Question

MGMT 4103-Business Decision Analysis Module 3-Decision Making Techniques -Comprehensive Exercise #1 To complete this comprehensive exercise, use the Excelspreadsheet program. In this exercise you will be developing a payoff table and using decision making techniques to solve the problem described in the following scenario. The owner of PawPrints, Becky Arf, has recently decided that she wants to possibly consider producing a new type of dog collar for the summer season. She wants to know if the risk of producing an entirely new product will be financially worth it. Of course, Becky could always do nothing and leave her product line the same. Paw Prints is company that produces dog collars for dog lovers in the Tulsa area. Recently the owner decided that it might be time to expand the product line with some new typesofcollars for the summer months. The owner of Paw Prints is a very creative person. She has made several different types of collars and, with the help of some MBA described below. students, she has test marketed the different types of collars. The different types of collars are Techno collar: A collar that also has a miniature radio attached to the collar. It also has other "trinkets" on the collar that disguise the radio. The radio can be controlled by an app on the owners cell phone. Misty Collar: A collar that also has a small "mister attached to the collar. The "mister can shoot a spray of water when activated by an app on the owners cell phone. Good smell collar: A collar that also has a small "mister attached to the collar. The "mister can shoot a spray of a type of cologne when activated by an app on the owner's cell phone. The MBA students were able to come up with the following information The Techno collar: After test marketing the product, the MBA team thinks Paw Prints could sell 500 collars if the demand is high, 300 collars if there is moderate demand, and 50 collars if there is low demand. For this type of collar Paw Prints would have to purchase a new machine that costs $1,000. Each collar has a variable cost of $5. The team ds a selling price of S18 The Misty Collar: After test marketing the product, the MBA team thinks Paw Prints could sell 600 collars if the demand is high, 400 collars if there is moderate demand, and 10o collars if there is low demand. For this type of collar Paw Prints se a new machine that costs $1.3S0. Each collar has a variable cost of $3.50. The team would have to purcha recommends a selling price of S15. The Good smell Collar: After test marketing the product the MBA team thinks Paw Prints could sell 700 collars if the demand is high, 400 collars if there is moderate demand, and 50 collars if there is low demand For this type of collar Paw Prints would have to purchase a new machine that costs si 500. Each collar has a variable cost ofs3 The team recommends selling price The owner of Paw Prints would like to know what she sbould do about her ideas, To complete the comprehensive exercise, solve the problem using Excel. Additionally, in your workbook respond to Parts A and Part B (listed below). NAME the workbook with your completed work using your last name in the file ame use: LASTNAME Mod3_Comp Exercise 1. Submit the Excel workbook in BlackBoard.

Explanation / Answer

Part A The company produces three types of dog collars. The fixed and variable prices and the selling prices are given below. Fixed cost($) Variable cost ($) Selling Price($) Techno collar(TC) 1000 5 18 Misty collar(MC) 1350 3.5 15 Good smell collar(GMC) 1500 3 23 The lexpected demands are shown below High Moderate Low Techno collar(TC) 500 300 50 Misty collar(MC) 600 400 100 Good smell collar(GMC) 700 400 50 Let D1,D2 and D3 be the high, moderate and low demand respectively. The payoff is = sales revenue - cost The payoffs for each kind of demand(Course of action) and the type of product(States of nature) are shown below. States of nature Courses of action D1 D2 D3 TC 5500 2900 -350 MC 5550 3250 -200 GMC 12500 6500 -500 1 Maximin Criteria States of nature Courses of action D1 D2 D3 TC 5500 2900 -350 MC 5550 3250 -200 GMC 12500 6500 -500 Column minimum 5500 2900 -55 Maximin Value = 5500 Hence the company should adopt course of action D1. 2 Maximax criteria States of nature Courses of action D1 D2 D3 TC 5500 2900 -350 MC 5550 3250 -200 GMC 12500 6500 -500 Column maximum 12500 6500 -200 Maximax value = 12500 Hence the company should adopt course of action D1. 3 Minimax Regret Criterion States of nature Courses of action D1 D2 D3 TC 5500-5500=0 5500-2900= 2600 5500- -350=5850 MC 5500-5550=0 5500-3250=2250 5500--200=5700 GMC 12500-12500=0 12500-6500=6000 12500- -500=13000 Column maximum 0 6000 13000 Minimax value = 13000 Hence the company should adopt course of action D3. 4 Equally likely criterion : Since we do not know the probabilities of different states of nature, assume equal probabilities of 1/3. Course of action Expected return D1 = (5500+5500+12500)/3 7833.333333 D2= (2900 + 3250+6500)/3 4216.666667 D3= (-350+-200+-500)/3 -350 Largest expected return is from Course of action D1. 5 Hurwicz criterion : Given that alpha = .45. Hence H = alpha(best payoff)+ (1-alpha) Worst payoff = alpha(Maximum in column)- (1-alpha)Minimum in column) Course of action Best payoff Worst pay off H D1 = 12500 5500 2600 D2= 6500 2900 1330 D3= -200 -500 185 The lowest cost is for D3. Part B If I were the owner , I will decide to introduce all the three products. Because, the return is high when the demand is high and the loss is less when the demand is low.

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