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Envico LTD

Envico Ltd is deciding which size conference room to contract from Mieras Business Associates for seminars over the coming year. Room sizes can accommodate 100, 200, 300, or 400 delegates. Envico will hold weekly seminars in each city, with speakers from Envico 20% of the time, regional governments 50% of the time, and national governments 30% of the time. Research shows 400 attendees when national representatives speak, 200 for regional, and 100 otherwise. Envico must maximize expected annual contribution based on these forecasts.

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Kashif Mehmood
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292 views2 pages

Envico LTD

Envico Ltd is deciding which size conference room to contract from Mieras Business Associates for seminars over the coming year. Room sizes can accommodate 100, 200, 300, or 400 delegates. Envico will hold weekly seminars in each city, with speakers from Envico 20% of the time, regional governments 50% of the time, and national governments 30% of the time. Research shows 400 attendees when national representatives speak, 200 for regional, and 100 otherwise. Envico must maximize expected annual contribution based on these forecasts.

Uploaded by

Kashif Mehmood
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Envico Ltd is well established and provides seminars on various aspects of current and recently announced changes in employment

legislation. Envico Ltd has decided to enter into a one-year renewable contract with Mieras BusinessAssociates,which owns large premises that are suitable for holding educational seminars in each of eight cities. Envico Ltd has had similar dealings with Mieras BusinessAssociates during recent years. Mieras BusinessAssociates has offered a choice of four different contracts,each of which relates to seminar rooms of differing sizes. These are known as room typesA,B,C and D,which are capable of accommodating 100,200,300 and 400 delegates respectively. Envico Ltd will charge an all-inclusive fee of 80 per delegate at every seminar throughout the year. The cost incurred by Envico Ltd varies according to room type,as shown in the following table: Room type A B C D No of attendees 100 200 300 400 Cost per seminar () 6,000 10,800 14,400 16,000

Envico must decide in advance of the forthcoming year which size of conference room to contract for. It is not possible to contract for a different size conference room in different cities,i.e. only one size of room can be the subject of the contract with Mieras BusinessAssociates. Due to the rapid growth in interest regarding environmental issues and corporate social responsibility,and the large amount of forthcoming legislative changes,Envico Ltd has decided to hold one seminar in every week of the year in each city. Sometimes a regional government representative will attend and speak at such seminars. On other occasions a national government representative will attend and speak at such seminars. The rest of the time the speakers at seminars are representatives from within Envico Ltd. Envico has estimated the following frequency regarding seminars to be held during the forthcoming year: Category of speaker: Envico representative Regional government representative National government representative % 20 50 30

Market research has indicated that where a national government representative is in attendance,Envico Ltd can be reasonably assured of selling 400 seminar places and where a regional government

representative is in attendance 200 seminar places can be sold. Envico Ltd expects to sell only 100 seminar places when there is no attendance by a government representative. Required: a) Explain the difference between risk and uncertainty and illustrate with brief examples. (4 marks) b) Advise Envico Ltd on the size of seminar room that should be contracted from Mieras BusinessAssociates, using the criterion of expected value. Your answer should show the expected annual contribution from each decision option. (10 marks) c) Determine whether your decision in (a) would change if you were to use the Maximin and Minimax regret decision criteria. Your answer should be supported by relevant workings. (6 marks) (Total = 20 marks)

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