Arrowmark Vending has the contract to supply pizza at football games for a university. The operations manager, Tom Kealey, faces the challenge of determining how many pizzas to make available at the games.
We have been provided with demand distributions for pizza based on past experience and know that Tom will only supply plain cheese and pepperoni and cheese combo pizzas. We also know that there is a fixed cost of
$1,000 allocated equally between the two types of pizzas, and that the costs to make plain cheese pizza and pepperoni and cheese pizza are $4.50 and $5.00 respectively. Both pizzas sell for $9.00 and unsold pizzas have no value. The purpose of this report is to provide Tom with some information regarding…show more content… Recommendation
If Kealey wants to achieve the highest expected profit from pizza sales at the game, he should produce
500 cheese pizzas and 500 pepperoni and cheese pizzas. Looking at the tables, we know this is the best option because we see the highest expected profit of $1,075 associated with this production level for cheese pizza and
$1,140 in profit for pepperoni and cheese pizza. This number takes into account the probabilities at each demand level, so we can be reasonably assured that this is an accurate