A Paint Company Has Three Sources for Buying Bright Red

question 20

Essay

A paint company has three sources for buying bright red pigment for their paints: Vietnam, Taiwan, or Thailand.Unfortunately, the pigment is made from a bush whose annual growth is heavily dependent upon the amount of rainfall during the growing season.The tables below show probabilities and prices for wet, dry and normal growing seasons:

a.Using decision tree analysis, what is the expected value (price) for Thailand?
b.What country should the company select and what is the expected value (price) associated with it?

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Definitions:

Operating Income

Income earned from a firm's regular business operations, excluding deductions of interest and taxes.

Absorption Costing

A costing method where all manufacturing costs, including both fixed and variable costs, are attributed to the product, thus fully absorbing them.

Net Income

The profit of a company after all expenses and taxes have been deducted from total revenue.

Variable Manufacturing Costs

Costs that vary directly with the level of production, including expenses like raw materials and direct labor.