Cost Volume Profit Analysis Example

DECISION
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Question 1
“Decision Analysis”
(a) The respective table is shown below:
(b) The computation and result are summarized below in the form of tables.
S.
No.
Computation Result
(i) Optimist would choose investment Share market
(ii) Pessimist would choose investment Bonds
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(iii) Considering criteria of regret Real estate
(iv) Expected monetary value and selection of investment Bonds
(v) Expected value of perfect information (EVPI) $ 15,000
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QUESTION 2
“Value of information”
(a) Profit computation for each of the option i.e. large shop and small shop is shown below:
Conclusion
The conclusion can be made that large shop would result maximum profit (EMV) i.e. $20,000
and hence, it is suggested that Jerry should invest in large shop for bicycle in order to derive high
profit.
(b) “The respective prior probability revision table”
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