The Operations Manager for a Local Bus Company Wants to Decide

question 7

Multiple Choice

The operations manager for a local bus company wants to decide whether he should purchase a small, medium, or large new bus for his company. He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, medium, or high, as follows: $$\begin{array} { | l | l | l | l | } \hline \text { Bus } & { \text { DEMAND } } \\\hline & \text { LOW } & \text { MEDIUM } & \text { HIGH } \\ \hline \text { Small } & 50 & 60 & 70 \\\hline \text { Medium } & 40 & 80 & 90 \\\hline \text { Large } & 20 & 50 & 120 \\\hline\end{array}$$ If he feels the chances of low, medium, and high demand are 30 percent, 30 percent, and 40 percent respectively, what is the expected annual profit for the bus that he will decide to purchase?

• A) $15,000
• B) $61,000
• C) $69,000
• D) $72,000
• E) $87,000

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Definitions:

Cash Flow Time Line

Graphical representation of the operating cycle and the cash cycle.

Cash Cycles

The process that covers the time span between a company’s outlay of cash for materials and the collection of cash from customers for goods or services sold.

Inventory Period

The average length of time items remain in inventory before being sold, indicating the efficiency of a company's inventory management.

Producing Goods

The process of creating, manufacturing, or assembling products or goods from raw materials or components.