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Dear John,
How are you ?
I hope you are doing well,
Could you help me regarding the following question please,
Q: Carson products sell sweatshirts and is preparing for a World Cup Soccer match. The cost per sweatshirt varies with the quantity purchased as follows.
Quantity Unit Cost
———– ———–
4000 $14
5000 $13.50
6000 $13
7000 $12.50
Carson must purchase the sweatshirts one month before the game and has analyzed the market and estimated sales levels as follows
Unit Sales 4000 5000 6000 7000
Probability %15 %20 %35 %30
The estimated selling price is $25 for sales made before and during game day. Any sweatshirts remaining after game day can be sold at wholesale to a local discount store for $110.
The expected profit if Carson purchased 6000 shirts is
A. $64,500
B. $66,000
C. $69,000
D. $72,000
My answer is as follow first of all I have calculated
the total expected unit sales as follow,
=4000 unit * 15% + 5000 unit * 20% + 6000 units * 35% + 7000 units * 30%
= 5800 Units.
Sales at normal price 5800 units * $25 $145,000
Sales at discounted price 200 Units * $10 2000
Cost of sales 6000 units * $13 (78,000)
————–
The total expected profit $69,000
But the correct answer is as follow
The total expected profit $ 64,500 According to the textbook.
Could you tell me what is wrong in my answer?Can be sold at wholesale to a local discount store for $10 Not $110 Iam sorry
You must always calculate the profit that would result from each of the four levels of demand first, and then calculate the expected profit. You cannot just calculate the expected demand and then calculate the profit because when the demand is less than 6,000 shirts then some are sold at a loss, whereas if demand is more than 6,000 then they can only sell 6,000.
Have you watched my free lectures, because I explain this in my lectures?
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