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Probability – Risk and Uncertainty

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Probability – Risk and Uncertainty

  • This topic has 8 replies, 3 voices, and was last updated 1 week ago by LMR1006.
Viewing 9 posts - 1 through 9 (of 9 total)
  • Author
    Posts
  • May 10, 2024 at 9:14 am #705201
    Darshjg
    Participant
    • Topics: 11
    • Replies: 14
    • ☆

    3. A shopkeeper has determined the following probability distribution of weekly demand for one of his most popular products.

    Demand (units) Probability
    300 0.2
    400 0.3
    500 0.3
    600 0.1
    700 0.1
    He must order each week’s sales in advance and any items left in inventory at the end of the week are scrapped. The items cost him $2.50 each and he sells them for $3 each.

    What is the optimal quantity to be ordered each week?

    A.300 units
    B.400 units
    C.450 units
    D.500 units

    Hello Sir, im sorry, the reason i havent written an answer is because despite several attempts, i just dont know how to do this. Kindly assist me. The answer is A but there was no explanation.

    May 10, 2024 at 5:23 pm #705213
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1496
    • ☆☆☆☆☆

    Where is this question from?

    May 11, 2024 at 8:07 pm #705262
    Darshjg
    Participant
    • Topics: 11
    • Replies: 14
    • ☆

    I found it in a random resource kit sent to me by a friend, it seems really simple but i dont know why i cannot get the answer.

    May 12, 2024 at 5:42 pm #705293
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1496
    • ☆☆☆☆☆

    It is NOT a FM standard question at all!
    It’s an ambiguous question
    I would move on ……

    Does it want the optimal quantity to be ordered each week can be determined using the Economic Order Quantity (EOQ) formula.

    Or

    Do we calculate optimal quantity to be ordered each week can be determined by calculating the expected profit for each order quantity and selecting the quantity that maximizes the expected profit.

    May 12, 2024 at 6:47 pm #705297
    Darshjg
    Participant
    • Topics: 11
    • Replies: 14
    • ☆

    If i’m not wrong, the optimal quantity to be ordered by calculating the expected profit for each order quantity, perhaps by using a table like in performance mgt. however, im not sure how to do it, Sir, could you perhaps help in that?

    May 12, 2024 at 9:44 pm #705303
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1496
    • ☆☆☆☆☆

    Why would we be doing this in FM?
    A student may not have studied PM yet?
    No I am not trying to solve this very ambiguous question

    May 19, 2025 at 12:33 pm #717352
    Chronsicc
    Participant
    • Topics: 3
    • Replies: 4
    • ☆

    Hi sir,
    This question is also given in studyhub (fm)
    so do u still think its not relevant for FM?

    May 19, 2025 at 9:16 pm #717362
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1496
    • ☆☆☆☆☆

    In my opinion it’s a very ambiguous question
    Is the answer A on the study hub?
    Does it explain how it’s calculated?
    Do you get that answer?

    I don’t think anyone should worry about it as …….
    It is an OT question worth 2 marks!!!!

    But I will explain how it’s calculated below

    May 20, 2025 at 5:33 am #717368
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1496
    • ☆☆☆☆☆

    Order 300
    Expected Profit = 0.2 * 150 + 0.3 * 150 + 0.3 * 150 + 0.1 * 150 + 0.1 * 150 =150
    Order 400
    Expected Profit = 0.2 * -850 + 0.3 * 200 + 0.3 * 200 + 0.1 * 200 + 0.1 * 200 = -20=?10
    Order 450
    Expected Profit = 0.2 * -975 + 0.3 * 75 + 0.3 * 225 + 0.1 * 225 + 0.1 * 225 = -195 + 22.5 + 67.5 + 22.5 + 22.5 = -60
    Order 500
    Expected Profit = 0.2 * -1100 + 0.3 * -50 + 0.3 * 250 + 0.1 * 250 + 0.1 * 250 = -220 + -15 + 75 + 25 + 25 = -135

    The answer is a 300

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