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Oh makes sense now, thanks.
I didn’t use maximin approach, but instead assessed what product gives the lowest chances of failure for risk averse- using FX moves as a key indicator (e.g. if FX rates change by 3 or 6 times then costs will be higher than sales price and therefore product will be loss making). Also estimated what product requires least amount of investment at risk.
Then calculated the potential total profit for all products (using expected fx rate as a reference) and selected the max one for risk takers.
I guess your approach is more refined and what examiners want to see.
Interesting how you had maximax, maximin in question 3.
I remember mine was about uncertainty and risk.That line about materials input was a catch for me.
And, John, what would change if we were to use weighted average method? How would it affect this calculation? Thank you.you need to use EOQ formula to find out optimal order amount:
EOQ= [2*20*5000*4/5]*(0,5)=400 units per order.
number of orders = 5000*4/400=50
average inventory would be 400/2=200 units.
re-order costs in this case amount to 50*20=1000$.
holding costs are 200*5=1000$
total min inv costs are 1000+1000=2000$.I think it goes smth like this:
since produced>sold, then absorption costing profit would be more than marginal.
the difference would be 5000*8*3=120k.
then you deduct this 120k from 526k and come to 406k.Coz it says “inv. at the end of each month is to be 20% of the following months production.”
So for the month 1 we have to take 20% of the following month (second).Well, after first month it has to be left 9000*20%=1800 units.
Plus 9000 units produced for month number 2.
And after second month we need 20%*7000=1400 units for month #3.
That gives us 1800+9000-1400=9400 units, which is 9400*4kg*5$=188000$.