Henry has a newspaper stand where he sells papers for $0.50 each. The papers cos
ID: 3324006 • Letter: H
Question
Henry has a newspaper stand where he sells papers for $0.50 each. The papers cost him $0.30 each, giving him a 20-cent profit on each one he sells. From past experience, Henry knows that
10% of the time he sells 100 papers
20% of the time he sells 150 papers
40% of the time he sells 200 papers
20% of the time he sells 250 papers
10% of the time he sells 300 papers
Assuming that Henry believes the cost of a lost sale is 10 cents and any unsold papers cost him $0.30, simulate Henry's profit outlook over 25 days if he orders 175 papers each day. Use the random numbers that I generated and are shown below and are also available to you in the accompanying Excel file (Random numbers for newspaper problem.xlsx). For each trial (day), calculate the following: number of papers demanded, number of papers sold, number of papers left over, number of sales lost, and profit. Calculate the following summary statistics for the simulation: average profit, % of times profit is negative. Would you recommend that Henry increases or decreases his standing order? (Note that Henry is very intolerant of risk.) Why?
Explanation / Answer
this is the demand distribution of the newspapers
With row1 containing the headers
Do it for 25 rows by using Random Number Generation in Data Analysis Toolpak in excel and sowing the value and proabability range.
It will fill the random demand in D column for 25 rows.
Rest of the formulae is given above, drag it for 25 rows.
25 days demand and sales are given as follows
Summary statistics.
Average profit is the average of 25 numbers in the I column (profit) ie 29.5 dollars.
% of times profit is negative = 1/25 = 4%
70% of the time the demand is over 200.
Henry is not risk tolerant, therefore 30% times his demand is lower with current ordering levels.
However he has incurred loss only 4% of times. so we will not recommend increasing the order size.
demand probability 100 0.1 150 0.2 200 0.4 250 0.2 300 0.1Related Questions
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