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Example 1
John has a factory capacity of 1,200 units per month.
Units cost him $6 each to make and his normal selling price is $11 each. However, the demand per
month is uncertain and is as follows:
Demand Probability
400 0.2
500 0.3
700 0.4
900 0.1
He has been approached by a customer who is prepared to contract to a fixed quantity per month
at a price of $9 per unit. The customer is prepared to sign a contract to purchase 300, 500, 700 or
800 units per month.
The company can vary production levels during the month up to the maximum capacity, but
cannot carry forward any unsold units in inventory.
(a) Calculate all possible profits that could result
ANSWER:ANSWER TO EXAMPLE 1
DEMAND 400u 500u 700u 900u
300u 2,900 3,400 4,400 5,400
500u 3,500 4,000 5,000 5,000
700u 4,100 4,600 4,600 4,600
800u 4,400 4,400 4,400 4,400THIS IS THE SOLUTION, IM NOT GETTING ITS CALCULATION. PLEASE HELP!
Why have you copied out the question from our lecture notes?
My free lecture works through this example and explains it.
It seems that you are using the lecture notes without watching the lectures, which is pointless – they are lecture notes and it is in the lectures that I explain and expand on the notes.
If you are not watching the lectures for any reason then you must buy a Study Text from one of the ACCA approved publishers and study from there.
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