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Expected values

Hhorses003y ago
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 units So why do we take both the normal demand and contract demand in calculating expected value?
C-Cath - CIMA Tutor3y ago#1
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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