Uncertain demand makes demand forecast critical for inventory related decisions:
ID: 3227295 • Letter: U
Question
Uncertain demand makes demand forecast critical for inventory related decisions: What to order? When to order? How much is the optimal order quantity? Fixed production costs: $100,000 Variable production cost per unit: $80. During the summer season, selling price: $125 per unit. Salvage value: Any swimsuit not sold during the summer season is sold to discount store for $20. Penalty for losing a customer: $10 per unit. Answer the questions: 1. Calculate the profitability in the following cases: Manufacturer produces 10,000 units while demand ends at 8,000 swimsuits Manufacturer produces 10,000 units while demand ends at 10,000 swimsuits Manufacturer produces 10,000 units while demand ends at 12,000 swimsuits 2. What is the probability of profitability scenarios with demands ends at 8,000, 10,000, and 12,000 units? Calculate the profitability when manufacturer produces 10,000 units while demand ends at 8,000, 10,000, and 12,000 units with a probability as given in the above figure.Explanation / Answer
For Summer season:
If demand = 8000 and supply = 10000
Cost = Fixed cost + Variable cost
= 100000 + 80*10000 = 900000
Revenue = 8000 *125 = 1000000
Profit = 100000
But in Non Summer season
Revenue = 8000*20 = 160000
Profit = - 740000
Same methodology goes with the rest of the part but we need to consider the penalty for the 3rd section
From the graph above given we can say the probabilities of demand for
8000 - 0.11
10000 - 0.11
12000 - 0.27
14000 - 0.23
16000 - 0.18
18000 - 0.10
So we can say that with supply 10000 and demand 8000 for summer season then probability of profit = 100000 is 0.11 (if 100000 is the answer of other parts of 1 question then we need to add the probability of those sales too )
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