Suppose the lowest and highest demand levels are updated to 70,000 and 145,000, respectively. What is the expected cost for Option 1 now?
Suppose the lowest and highest demand levels are updated to 70,000 and 145,000, respectively. What is the expected cost for Option 1 now?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question
Suppose the lowest and highest demand levels are updated to 70,000 and 145,000, respectively.
What is the expected cost for Option 1 now?
Transcribed Image Text:Option 1
Option 2
Fixed cost (per Variable cost
year)
(per unit)
$650,000
$350,000
$1
$17
Transcribed Image Text:Demand (units
per year)
50,000
95,000
140,000
Probability
40%
40%
20%
Expert Solution
Step 1 Introduction:
Given that the fixed cost for one year is 650000, the variable cost per unit is 1, For each demand unit per year, I have been given the probability data, here, I would determine the Expected cost for option 1, the detailed calculations are shown in the next section,
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