Question

45. A gasoline mini-mart orders 25 copies of a monthly magazine. Depending on the cover story, demand for the magazine varies. The mini-mart purchases the magazines for $1.50 and sells them for $4.00. Any magazines left over at the end of the month are donated to hospitals and other health care facili- ties. Modify the newsvendor example spreadsheet to model this situation. Use what-if analysis to inves- tigate the financial implications of this policy if the demand is expected to vary between 10 and 30 copies each month.

Answer 1

Answer:

Number of copies purchased = 25

Purchase cost = 1.5

sales Price = 4

Discount Price = 0

Demand = 10

Purchase quantity = 15

Profit = 2.5

Quantity = Max(10, 25 ) = 25

Surplus quantiy = Max(0 , 25 -10)

Profit = B12 * B3 + B13 * B5 - B10 * B4

Selling Price	4		Demand	Profit
Cost	1.5		1	-33.5
Discount Price	0		2	-29.5
Model			3	-25.5
Demand	10		4	-21.5
Purchase Quantity	25		5	-17.5
Quantity Sold	10		6	-13.5
Surplus Quantity	15		7	-9.5
Profit	2.5		8	-5.5
			9	-1.5
			10	2.5
			11	6.5
			12	10.5
			13	14.5
			14	18.5
			15	22.5
			16	26.5
			17	30.5
			18	34.5
			19	38.5
			20	42.5
			21	46.5
			22	50.5
			23	54.5
			24	58.5
			25	62.5
			26	62.5
			27	62.5
			29	62.5
			30	62.5
Selling Price	4		Demand	Profit
Cost	1.5		1	-33.5
Discount Price	0		2	-29.5
Model			3	-25.5
Demand	10		4	-21.5
Purchase Quantity	25		5	-17.5
Quantity Sold	10		6	-13.5
Surplus Quantity	15		7	-9.5
Profit	2.5		8	-5.5
			9	-1.5
			10	2.5
			11	6.5
			12	10.5
			13	14.5
			14	18.5
			15	22.5
			16	26.5
			17	30.5
			18	34.5
			19	38.5
			20	42.5
			21	46.5
			22	50.5
			23	54.5
			24	58.5
			25	62.5
			26	62.5
			27	62.5
			29	62.5
			30	62.5

After demand exceeds 25, the profit remanins the same at $62.5 because the purchase quantity is limited to 25 cpies. so the company will lose out on orders for demanding for demand greater thn 25.

this will impact the bottom line for minimart and reduces the overall profitability