CMA Study Group

 View Only

DETERMINISTIC APPROACH IN PROBABILTY ANALYSIS

  • 1.  DETERMINISTIC APPROACH IN PROBABILTY ANALYSIS

    Posted 06-10-2022 02:00 AM
    Dear Friends,

    Can you please explain the deterministic approach in probability analysis in this question?
    Thank you in advance..
    Regards

    Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.
    Sales of Desserts at $1.80/unit
    Sales of Rolls at $1.20/unit
    Volume
    Probability
    Volume
    Probability
    250,000
    .30
    200,000
    .20
    300,000
    .40
    250,000
    .50
    350,000
    .20
    300,000
    .20
    400,000
    .10
    350,000
    .10
    The costs associated with the two products have been estimated by Gleason's cost accounting department and are as follows:
    Dessert
    Rolls
    Ingredients per unit
    $     .40
    $     .25
    Direct labor per unit
    .35
    .30
    Variable overhead per unit
    .40
    .20
    Production tooling*
    48,000
    25,000
    Advertising
    30,000
    20,000
    *Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.
    Applying a deterministic approach, Gleason's revenue from sales of frozen desserts would be


    ------------------------------
    TIMUCIN ONER
    Director/Manager
    ANTALYA
    Turkey
    ------------------------------