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A yatch company has developed a new cabin cruiser which they earmarked for the

medium to large board market. A market analysis has a 30% probability of annual sales

being 5000 boats, and a 40% probability of 4000 annual sales. This company can go into

limited production while available costs are sh.10,000 per boat and a fixed cost and

sh.800,000 annually. Alternatively they can go into full production where variable cost

are sh.9000 per boat and fixed costs are sh.5,000,000 annually, if the new boat is to be

sold for shs.11,000 should the company go to limited or full scale production when the

objective is to maximized expected profits (use a tree diagram)

pur-new-sol

Answer:

The Company should go in for Limited Scale Production since it has high annual expected profits(Shs. 3200000)

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