Cost per carton of Vegetables | Lot size |
40 | 10 |
39 | 20 |
37 | 30 |
36 | 40 |
34 | 50 |
Price | |
Selling price of each carton | $50 |
Selling price of unsold cartons | $24 |
Cost of Goodwill Loss | $6 |
Demand Estimate | Probability |
15 | 0.35 |
25 | 0.25 |
35 | 0.2 |
45 | 0.2 |
Expected Demand = 15*0.35 + 25*0.25 + 35*0.2 + 45*0.2 = 28
Orders Must be placed at a lot size of 10
Therefore , considering expected demand of 28, we need to either order 20 or 30 cartons
Scenario 1 : When the lot size of 20 is ordered:
Expected Demand = 28
Cost of 20 cartons = 20* 39 = $780
Cost of Goodwill loss = 8 * 6 = $48
Total cost = $780 + $48 = $828
Selling Price of each carton = $50
Total Sales = 20 *50 = $1000
Profit = 1000 - 828 = $172.
Scenario 2: A lot size of 30 is ordered:
Expected Demand = 28
Cost of 30 cartons = 30 * 37 = $1110
Total cost = $1110
Selling Price of each Cartons = $50
Selling Price of 28 Cartons= $50*28 = $1400
Selling Price of each leftover Cartons = $24
Selling Price of 2 leftover Cartons = $24*2= $48
Total Sales = $1400 + $48 = $1448
Profit = $1448 - $1100 = $348.
Therefore, the second scenario should be opted as it generates more profit as compared to scenario 1.
2. ABC Farm Patch sells a carton of vegetables for $50 each. For each day, they estimate that they will sell 15, 25,...