Sunny Groves is Citrus grower in a southern state that has several citrus orchards, Weather forcasters are predicting a significant drop in temperatures over the next 2 days. The forcast calls for a 25% chance of near-freezing temperatures and a 10 % chance of a deep freeze. The management of Sunny Groves is concerned that bad weathr may damage their crops of fruit. If the weather is fine the company stands to make a profit of $1,000,000 revenue for their harvest. There are 3 options that the company can take.Do nothing Try to save crops by placing heaters at a cost of $50,000 which would reduce potential losses to $2,000,000 in a near freeze and $350,000 in a deep freezeSave crops with enclosures and heaters at a cost of $150,000 which would reduce potential losses of $0 in a near-freeze and $150,000 in a deep freeze.Create a three by three table calculating the net revenue(revenue minus precaution cost) under all combinations of weather and precautions. Find the expected value of the net revenue under each precaution options.

Revenue- Total revenue is defined as the complete revenues generated through the sale of a company's…

Answered: Sunny Groves is Citrus grower in a…

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 14P

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Sunny Groves is Citrus grower in a southern state that has several citrus orchards, Weather forcasters are predicting a significant drop in temperatures over the next 2 days. The forcast calls for a 25% chance of near-freezing temperatures and a 10 % chance of a deep freeze.

The management of Sunny Groves is concerned that bad weathr may damage their crops of fruit. If the weather is fine the company stands to make a profit of $1,000,000 revenue for their harvest. There are 3 options that the company can take.

Do nothing
Try to save crops by placing heaters at a cost of $50,000 which would reduce potential losses to $2,000,000 in a near freeze and $350,000 in a deep freeze
Save crops with enclosures and heaters at a cost of $150,000 which would reduce potential losses of $0 in a near-freeze and $150,000 in a deep freeze.

Create a three by three table calculating the net revenue(revenue minus precaution cost) under all combinations of weather and precautions. Find the expected value of the net revenue under each precaution options.

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