2711 Words Feb 15th, 2014 11 Pages
Addis Ababa University
College of Business and Economics
MBA Program

Case Assignment

Course Title: - Statistical Decision Theory
Instructor’s Name: - Dr. Yitibarek T.

Submitted by: -
1. Leul Wondemeneh GSR/2024/06

Submission Date: - December 06, 2013

Given – Part A
1. Sales forecast – (at $ 30 retail price with the assumption of $15 whole sale price)
a. 400,000 copies – 40% chance;
b. 1,000,000 copies – 30% chance;
c. 100,000 copies – 30% chance; 2. Flat deal with Senator Murphy
a. $ 500,000 upon signing agreement;
b. $500,000 upon completion of a completed manuscript; 3. Chance of delivering a completed manuscript 80% (i.e. 20% chance if not delivering a completed
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[ii] Senator Murphy don’t deliver the manuscript (with a chance of 20%)
The costs for B&C associated with this probable outcome are the advance payment paid for the Senator upon signing agreement, i.e. $500,000 and the incremental cost of $50,000. [iii] B&C decides to kill the book (with a chance of 75%)
Provided that Murphy delivers the book, $250,000 for editorial services plus all the costs associated with the first outcome will be the cost in line with this outcome. [iv] B&C publishes the book (with a chance of 25%)
Again assuming that Murphy delivers a completed manuscript the costs associated with this outcome in addition to the cost in the first outcome will be;
$100,000 for editorial service
$500,000 for publicity
$50,000 for preparing camera ready proofs
Printing cost of $4 per copy
$0.25 per copy for distribution costs and
Incremental cost of 5% of wholesale price, i.e. $0.75 per copy
Therefore the total cost associated with this outcome is a fixed cost of $650,000 for editorial, publicity, and camera proofs and a variable cost of $5 per copy for incremental, distribution and printing costs.

Expected revenue (Possible weighted revenue)
Before we calculate the expected revenue we must compute the weighted (expected) sales projection which is the summation of all the sales projection multiplied by the probable percentages attached to it respectively.