The Operations Manager for a Local Bus Company Wants to Decide

question 5

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, moderate, or high, as follows.

What is the expected annual profit for the bus that he will decide to purchase using Bayes' decision rule?

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

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Definitions:

Manufacturing Overhead

All indirect costs associated with the production process, excluding direct material and direct labor costs.

Predetermined Overhead Rate

A rate established in advance to allocate overhead costs to products or services based on a specific activity base.

Machine-Hours

A measure of production time where one machine-hour equals the operation of one machine for one hour.

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process, used as a base for allocating overhead costs to products.