The university book store buys a used text book for a forthcoming semester\'s ma
ID: 461925 • Letter: T
Question
The university book store buys a used text book for a forthcoming semester's management class. The books purchased are in multiples of the demand shown in the table. Based on the past records, the following information is available. check correct statements will results in obtaining credits, while check incorrect statements will results in losing credits.
Price/per
$175
Cost/per
$85
Salvage/per
$45
Demand/units
60
120
180
240
Probability
0.25
0.50
0.15
0.10
the lowest emv is not $5,400.
if decision alternative is to buy 180 books and demand is 120, the payoff is not $2,400.
if decision alternative is to buy 180 books and demand is 60, the sales is $10,500.
if decision alternative is to buy 180 books and demand is 60, the salvage is not $5,400.
if decision alternative is to buy 240 books and demand is 60, the profit is $1,800
the second lowest emv is $6,780.
if decision alternative is to buy 240 books and demand is 60, the payoff is ($450).
if decision alternative is to buy 240 books and demand is 180, the salvage is not $2,000.
if decision alternative is to buy 240 books and demand is 180, the sales is $31,600.
the highest emv is 8,850 units.
Price/per
$175
Cost/per
$85
Salvage/per
$45
Demand/units
60
120
180
240
Probability
0.25
0.50
0.15
0.10
Explanation / Answer
Answer
Explanation
a.
the lowest emv is not $5,400.
Incorrect
Lowest EMV is 5400
b.
if decision alternative is to buy 180 books and demand is 120, the payoff is not $2,400.
Correct
Payoff = 120*90-40*60 = 8400
c.
if decision alternative is to buy 180 books and demand is 60, the sales is $10,500.
Correct
Sales = 60*175 = 10500
d.
if decision alternative is to buy 180 books and demand is 60, the salvage is not $5,400.
Incorrect
Salvage = 120*45 = 5400
e.
if decision alternative is to buy 240 books and demand is 60, the profit is $1,800
Incorrect
Profit = 60*90 – 40*180 = -1800 (loss)
f.
the second lowest emv is $6,780.
Correct
Corresponding to decision to buy 240 books =
-1800*0.25+6000*0.5+13800*0.15+21600*0.1 = 6780
g.
if decision alternative is to buy 240 books and demand is 60, the payoff is ($450).
Incorrect
Payoff = 60*90-40*180 = -1800
h.
if decision alternative is to buy 240 books and demand is 180, the salvage is not $2,000.
Correct
Salvage = 60*45 = 2700
i.
if decision alternative is to buy 240 books and demand is 180, the sales is $31,600.
Incorrect
Sales = 180*175 = 31500
j.
the highest emv is 8,850 units.
Incorrect
Highest EMV = 8400
Calculation of EMV
Cost Price 85
Selling Price 175
Salvage Price 45
Profit, if sold (P) =175-85 = 90
Loss, if unsold (L) =45-85 = -40
Conditional Profit = Profit (P) * Min(D,S) + Loss (L) * Max(0,S-D)
Where, D - Demand
S - Supply
EXPECTED VALUE
Expected Value is calculated as SUMPRODUCT of outcomes and respective probabilities
Demand
Decision
60
120
180
240
EMV
Supply
0.25
0.5
0.15
0.1
60
5400
5400
5400
5400
5400
120
3000
10800
10800
10800
8850
180
600
8400
16200
16200
8400
240
-1800
6000
13800
21600
6780
Answer
Explanation
a.
the lowest emv is not $5,400.
Incorrect
Lowest EMV is 5400
b.
if decision alternative is to buy 180 books and demand is 120, the payoff is not $2,400.
Correct
Payoff = 120*90-40*60 = 8400
c.
if decision alternative is to buy 180 books and demand is 60, the sales is $10,500.
Correct
Sales = 60*175 = 10500
d.
if decision alternative is to buy 180 books and demand is 60, the salvage is not $5,400.
Incorrect
Salvage = 120*45 = 5400
e.
if decision alternative is to buy 240 books and demand is 60, the profit is $1,800
Incorrect
Profit = 60*90 – 40*180 = -1800 (loss)
f.
the second lowest emv is $6,780.
Correct
Corresponding to decision to buy 240 books =
-1800*0.25+6000*0.5+13800*0.15+21600*0.1 = 6780
g.
if decision alternative is to buy 240 books and demand is 60, the payoff is ($450).
Incorrect
Payoff = 60*90-40*180 = -1800
h.
if decision alternative is to buy 240 books and demand is 180, the salvage is not $2,000.
Correct
Salvage = 60*45 = 2700
i.
if decision alternative is to buy 240 books and demand is 180, the sales is $31,600.
Incorrect
Sales = 180*175 = 31500
j.
the highest emv is 8,850 units.
Incorrect
Highest EMV = 8400
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