Baby Company Ltd (BCL) is a manufacturer of baby equipment and is planning to launch a
revolutionary new style of sporty pushchair. The company has commissioned market research to
establish possible demand for the pushchair and the following information has been obtained. If the
price is set at NS425, demand is expected to be 1 000 pushchairs, at NS500 the demand will be 730
pushchairs and at NS600 the demand will be 420 pushchairs. Variable costs are estimated at either
NS170, NS210 or NS260. A decision needs to be made on what price to charge. In addition to the
above information, the company uses Residual Income as a performance measurement tool to rate
its employees.

Required
a) Prepare a table showing the expected contribution for each of the possible outcomes.
b) Explain what is meant by maximax, maximin and minimax regret decision rules using the
information in the scenario to illustrate your explanations.

c,) Identify any two advantages and two disadvantages of using the Residual Income (RI) as
a performance measurement tool.