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Forums › ACCA Forums › ACCA PM Performance Management Forums › Question on Risk and Uncertainty
Sam is a trader who sells Parle G biscuits. He generally buys the biscuits in quantities
to avail the quantity discount. The purchases can be made in the multiples of 500
packets only. If the quantity purchased is 1000 or less per month, the purchase price is
$6 per packet, but above 1000 packets per month, the purchase price is $5 per packet.
Sam sells the biscuits at $8 per packet. The shelf life of the biscuits is 1 month, and
after that, the company buy back the unsold biscuits at $1 per packet.
For every unsatisfied customer, the opportunity cost is calculated as $0.5. The
demand for the biscuits could be 1000, 1500 or 2000, with probabilities of 0.1; 0.3
and 0.6 respectively.
Required:
1. Advise Sam on the quantities to buy under the following decision criteria.
a. Maximin
b. Maximax
c. Mini max regret
d. Expected value
In this question could you please explain what do we do with the “unsold biscuits buy-back cost” and the “opportunity cost for unsatisfied customer that is $0.5”
Thank you!
In future you must ask int he Ask the Tutor forum if you want me to answer. This forum is for students to help each other 🙂
For biscuits that the company sells, they make a profit of either $2 or $3 depending on the quantity they had bought.
Any unsold biscuits make a loss of either $5 or $4 (again depending on the quantity they had bought).
Any unfulfilled demand (because they had not bought enough) makes a loss of $0.50 per biscuit not supplied.
Thank you sir!
I will post such types of questions in the ask the tutor forum next time onwards ?
Welcome to Opentuition. As stated above by tutor, please use ask the tutor forum if you want the tutor to answer something directly. May I ask if you could share the answer to the question, or if not possible, how you answered the above questions. Think I know how I would approach the question but curious if I am correct. Anyway, good luck with your future studies.