CMA Intermediate · Management Accounting · Decision Theory
Arjun Traders can stock 100, 200 or 300 units of a perishable item. Profit per unit sold is Rs. 20; unsold units lose Rs. 10 each. Demand is 100, 200 or 300 with probabilities 0.2, 0.5, 0.3. Compute EVPI.
Best EMV is Rs. 3,400 for stocking 200 units. EPPI is 400+2,000+1,800 = Rs. 4,200. EVPI is therefore Rs. 800.
- ARs. 700Correct
- BRs. 500
- CRs. 900
- DRs. 1,100
Explanation
Payoffs: stock100: 2000 each state. Stock200: 1000, 4000, 4000. Stock300: 0, 3000, 6000. EMV: 2000; 0.2x1000+0.5x4000+0.3x4000=3400; 0+1500+1800=3300. Best 3400. EPPI: 2000,4000,6000 = 400+2000+1800=4200. EVPI=4200-3400=800. Option 800 is not listed, so none of the keys matches; correct value is Rs. 800.
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