The demand for a product of Carolina Industries varies greatly from month to month. The probability distribution in the following table, based on the past two years of data, shows the company's monthly demand. Unit Demand Probability 300 0.15 400 0.25 500 0.35 600 0.25 (a) If the company bases monthly orders on the expected value of the monthly demand, what should Carolina's monthly order quantity be for this product? (b) Assume that each unit demanded generates $70 in revenue and that each unit ordered costs $50. How much will the company gain or lose in a month (in dollars) if it places an order based on your answer to part (a) and the actual demand for the item is 300 units?
The demand for a product of Carolina Industries varies greatly from month to month. The probability distribution in the following table, based on the past two years of data, shows the company's monthly demand. Unit Demand Probability 300 0.15 400 0.25 500 0.35 600 0.25 (a) If the company bases monthly orders on the expected value of the monthly demand, what should Carolina's monthly order quantity be for this product? (b) Assume that each unit demanded generates $70 in revenue and that each unit ordered costs $50. How much will the company gain or lose in a month (in dollars) if it places an order based on your answer to part (a) and the actual demand for the item is 300 units?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The demand for a product of Carolina Industries varies greatly from month to month. The probability distribution in the following table, based on the past two years of data, shows the company's monthly demand.
Unit Demand
Probability
300
0.15
400
0.25
500
0.35
600
0.25
(a) If the company bases monthly orders on the expected value of the monthly demand, what should Carolina's monthly order quantity be for this product?
(b) Assume that each unit demanded generates $70 in revenue and that each unit ordered costs $50. How much will the company gain or lose in a month (in dollars) if it places an order based on your answer to part (a)
and the actual demand for the item is 300 units?
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