Chapter 4 Forecasting: Process and Technology Keisha has been inundated with pro
ID: 410250 • Letter: C
Question
Chapter 4 Forecasting: Process and Technology
Keisha has been inundated with product-of-the-month offers from various marketing companies. She is considering joining a club that allows DVDs to be downloaded from a members-only Web site, but can’t decide which membership offers the best deal. Given the cost information below, which club would you recommend for Keisha? Why?
Club Membership fee yearly Cost per DVD rental
Almost Free Flicks $ 40 $ 5
Best Movies $65 $ 4
Choice Cinema $100 $ 3
Any real world examples that you can add would be great also. Feel free to use Excel spreadsheets / graphs but they are not required. Not enough information was provided on purpose similar to the real world where you will not get a complete picture.
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Explanation / Answer
Option 1 - Almost Free Flicks
Membership fee yearly (Fixed cost) = 40 $
Cost per DVD rental (Variable cost) = 5 $ per DVD
Total cost = 40+5x
Option 2 - Best Movies
Membership fee yearly (Fixed cost) = 65 $
Cost per DVD rental (Variable cost) = 4 $ per DVD
Total cost = 65+4x
Option 3 - Choice Cinema
Membership fee yearly (Fixed cost) = 100 $
Cost per DVD rental (Variable cost) = 3 $ per DVD
Total cost = 100+3x
Scenartio 1 --->
40+5x = 65+4x => x = 25 DVDs
Option 1 at x = 26 => 40+5*26 = 170 $
Option 2 at x = 26 => 65+4*26 = 169 $
Hence, from 0-25 DVDs, Keisha should prefer option 1
Scenartio 2 --->
65+4x = 100+3x => x = 35 DVDs
Option 2 at x = 36 => 65+4*36 = 209 $
Option 3 at x = 36 => 100+3*36 = 208 $
Hence, from 25-35 DVDs, Keisha should prefer option 2
and for 35+ DVDs, Keisha should prefer option 3
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