A health centre specializes in the provision of sports/exercise and medical/dietary advice to clients. The service is provided on a residential basis and clients may stay for whatever number of days...

A health centre specializes in the provision of sports/exercise and medical/dietary advice to clients. The service is provided on a residential basis and clients may stay for whatever number of days to suit their needs. Budgeted estimates for the year ending 30 June 2020 are as follows:

(i) The maximum capacity of the centre is 50 clients per day for 350 days in a year.

(ii) Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with the client fee level per day and is estimated at different percentages of maximum capacity as follows:

(iii) Variable costs are also estimated at one of three levels per client day. The high, most likely and low levels per client day are RM95, RM85 and RM70 respectively.

The range of cost levels reflects only the possible effect of the purchase prices of goods and services.

Required :

a.

Prepare a summary which shows the budgeted contribution earned by the centre for the year ended 30 June 2020 for each of the nine possible outcomes.

b.

State the client fee strategy for the year to 30 June 2020 which will result from the use of each of the following decision rules.

(i) Maximax.

(ii) Maximin.

(iii) Minimax regret.

Your answer should explain the basis of operation of each rule. Use the information from your answer to (a) as relevant and show any additional working calculations as necessary.

c.

“A fundamental characteristic of all decision problems is that the outcome is uncertain. Since the data are estimates of future events, it is not possible to predict decision outcomes with the perfect accuracy”.

In relation to the above statement, briefly discuss the application of the following methods to reduce the effects of uncertainty:

(i) Sensitivity Analysis

(ii) Decision Tree with probabilities.