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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 unitsHello 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.
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.
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.
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?
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 questionHi sir,
This question is also given in studyhub (fm)
so do u still think its not relevant for FM?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
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 = -135The answer is a 300
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