BROCKWAY AND COATES
Addis Ababa University
College of Business and Economics
MBA Program
Case Assignment
Course Title: - Statistical Decision Theory
Instructor’s Name: - Dr. Yitibarek T.
Submitted by: -
1. Leul Wondemeneh GSR/2024/06
Submission Date: - December 06, 2013
CASE TITLE: BROCKWAY AND COATES
Given – Part A
1. Sales forecast – (at $ 30 retail price with the assumption of $15 whole sale price)
a. 400,000 copies – 40% chance;
b. 1,000,000 copies – 30% chance;
c. 100,000 copies – 30% chance; 2. Flat deal with Senator Murphy
a. $ 500,000 upon signing agreement;
b. $500,000 upon completion of a completed manuscript; 3. Chance of delivering a completed manuscript 80% (i.e. 20% chance if not delivering a completed manuscript;
4. Likelihood of publishing the Manuscript is 75% (i.e. 25% chance of not publishing the Manuscript);
5. Cost of editorial service $250,000 (whether B&C decides to publish or not);
6. Decision to publish will result in an addendum cost of $50,000 for preparing camera ready proofs;
7. Printing costs - $4.00 per copy (100,000 copies to be printed no matter what);
8. Distribution cost - $0.25 per copy;
9. Marketing costs – 40% of wholesale price or 20% of retail price (i.e. 6 birr per copy) (Note that this is B&C’s marketing department fixed cost which will occur whether B&C signs a deal with Senator Murphy or not);
10. Incremental Marketing and sales cost – 5% of the wholesale price (i.e. $0.75 per copy), this cost won’t be incurred if B&C decides not to publish the manuscript;
11. Incremental costs, had B&C decide to kill the book, will only be a flat amount of $50,000;
12. Considering incremental costs the cost of editorial service will drop off to $100,000;
Case Query 1 – Expected contribution to B&C if it signs a flat deal rate agreement with Senator Murphy?
Before we start calculating the expected contribution to B&C if it signs the flat deal, let’s first depict how the decision tree would look like
College of Business and Economics
MBA Program
Case Assignment
Course Title: - Statistical Decision Theory
Instructor’s Name: - Dr. Yitibarek T.
Submitted by: -
1. Leul Wondemeneh GSR/2024/06
Submission Date: - December 06, 2013
CASE TITLE: BROCKWAY AND COATES
Given – Part A
1. Sales forecast – (at $ 30 retail price with the assumption of $15 whole sale price)
a. 400,000 copies – 40% chance;
b. 1,000,000 copies – 30% chance;
c. 100,000 copies – 30% chance; 2. Flat deal with Senator Murphy
a. $ 500,000 upon signing agreement;
b. $500,000 upon completion of a completed manuscript; 3. Chance of delivering a completed manuscript 80% (i.e. 20% chance if not delivering a completed manuscript;
4. Likelihood of publishing the Manuscript is 75% (i.e. 25% chance of not publishing the Manuscript);
5. Cost of editorial service $250,000 (whether B&C decides to publish or not);
6. Decision to publish will result in an addendum cost of $50,000 for preparing camera ready proofs;
7. Printing costs - $4.00 per copy (100,000 copies to be printed no matter what);
8. Distribution cost - $0.25 per copy;
9. Marketing costs – 40% of wholesale price or 20% of retail price (i.e. 6 birr per copy) (Note that this is B&C’s marketing department fixed cost which will occur whether B&C signs a deal with Senator Murphy or not);
10. Incremental Marketing and sales cost – 5% of the wholesale price (i.e. $0.75 per copy), this cost won’t be incurred if B&C decides not to publish the manuscript;
11. Incremental costs, had B&C decide to kill the book, will only be a flat amount of $50,000;
12. Considering incremental costs the cost of editorial service will drop off to $100,000;
Case Query 1 – Expected contribution to B&C if it signs a flat deal rate agreement with Senator Murphy?
Before we start calculating the expected contribution to B&C if it signs the flat deal, let’s first depict how the decision tree would look like