The Owner of Tastee Cookies Needs to Decide Whether to Lease

question 38

Multiple Choice

The owner of Tastee Cookies needs to decide whether to lease a small,medium,or large new retail outlet.She estimates that monthly profits will vary with demand for her cookies as follows: If she feels there is a 30% chance that demand will be high,what is her expected payoff?

• A) $1,600
• B) $1,100
• C) $1,000
• D) $900
• E) $500

---

Definitions:

Budgeted Fixed Overhead

The predetermined estimate of the total fixed costs required to produce a specific amount of output over a fixed period.

Budgeted Variable Overhead

Estimated costs that vary with production volume, such as utilities or raw materials, not directly tied to labor or capital.