【Questions】
Please use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple
choice question. Do not write out the answers to the MCQs on the lined pages of the answer booklet.
Each question is worth 2 marks.
The following scenario relates to questions 16–20.
Mylo runs a cafeteria situated on the ground floor of a large corporate office block. Each of the five floors of the building
are occupied and there are in total 1,240 employees.
Mylo sells lunches and snacks in the cafeteria. The lunch menu is freshly prepared each morning and Mylo has to decide
how many meals to make each day. As the office block is located in the city centre, there are several other places situated
around the building where staff can buy their lunch, so the level of demand for lunches in the cafeteria is uncertain.
Mylo has analysed daily sales over the previous six months and established four possible demand levels and their
associated probabilities. He has produced the following payoff table to show the daily profits which could be earned from
the lunch sales in the cafeteria:
Demand level Probability Supply level
450 620 775 960
$ $ $ $
450 0·15 1,170 980 810 740
620 0·30 1,170 1,612 1,395 1,290
775 0·40 1,170 1,612 2,015 1,785
960 0·15 1,170 1,612 2,015 2,496
16 If Mylo adopts a maximin approach to decision-making, which daily supply level will he choose?
A 450 lunches
B 620 lunches
C 775 lunches
D 960 lunches
17 If Mylo adopts a minimax regret approach to decision-making, which daily supply level will he choose?
A 450 lunches
B 620 lunches
C 775 lunches
D 960 lunches
18 Which of the following statements is/are true if Mylo chooses to use expected values to assist in his
decision-making regarding the number of lunches to be provided?
(1) Mylo would be considered to be taking a defensive and conservative approach to his decision
(2) Expected values will ignore any variability which could occur across the range of possible outcomes
(3) Expected values will not take into account the likelihood of the different outcomes occurring
(4) Expected values can be applied by Mylo as he is evaluating a decision which occurs many times over
A 1, 2 and 3
B 2 and 4
C 1 and 3 only
D 4 only
8
19 The human resources department has offered to undertake some research to help Mylo to predict the number of
employees who will require lunch in the cafeteria each day. This information will allow Mylo to prepare an accurate
number of lunches each day.
What is the maximum amount which Mylo would be willing to pay for this information (to the nearest whole $)?
A $191
B $359
C $478
D $175
20 Mylo is now considering investing in a speciality coffee machine. He has estimated the following daily results for the
new machine:
$
Sales (650 units) 1,300
Variable costs (845)
––––––
Contribution 455
Incremental fixed costs (70)
––––––
Profit 385
––––––
Which of the following statements are true regarding the sensitivity of this investment?
(1) The investment is more sensitive to a change in sales volume than sales price
(2) If variable costs increase by 44% the investment will make a loss
(3) The investment’s sensitivity to incremental fixed costs is 550%
(4) The margin of safety is 84·6%
A 1, 2 and 3
B 2 and 4
C 1, 3 and 4
D 3 and 4 only
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