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Chapter 16_Example two
For the calculation of the expected values are the probabilities not only applicable to the normal demand? For the contract there are no probabilities if I sign a contract for 300 units I will supply 300 unitsSo why do we take both the normal demand and contract demand in calculating expected value?
Hi,
Thanks for your query,
I can see your thinking – but its more that a decision whether to accept the contract.
Eg compare the average expected value of the different demand levels to see which contract level is worthwhile.
So the demand cant be predicted – but the contract quantity has to be agreed in advance.
Hope that makes sense + also this should be covered by the P2 recorded videos for a full working.
Many Thanks
Cath
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