A shop is planning an order for a popular Christmas festive season product. Demand for the product usually starts from first week of December till first week of January and reduces sharply thereafter. For this reason, and to stimulate sales for leftovers, the product is sold at a significantly reduced price from the second week of January to the fourth week of January. Any leftover after the fourth week of January goes waste. The table below gives past data on total demand for the period from first week of December to first week of January, and from second week of January to fourth week of January, together with their respective chances of occurrence. The product can be purchased at a wholesale price of GHS60 per unit for a pack containing 600 products, GHS57 per unit for a pack containing 800 products, and GHS52 per unit for a pack containing 1000 products. The shop plans to sell the product for GHS80 per unit from first week of December to first week of January, and at a reduced price of 30% thereafter. 1st week of December to 1st week of January 2nd week of January to 4th week of January Demand Probability Demand Probability 500. 0.1 320. 0.5 600. 0.3 180. 0.3 750. 0.4 130. 0.2 800. 0.2 i. What is the expected profit when a pack containing 600 products is ordered? ii. What the expected profit when a pack containing 800 products is ordered? iii. What is the expected profit when a pack containing 1000 products is ordered?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question 4
A shop is planning an order for a popular Christmas festive season product. Demand for the product usually starts from first week of December till first week of January and reduces sharply thereafter. For this reason, and to stimulate sales for leftovers, the product is sold at a significantly reduced price from the second week of January to the fourth week of January. Any leftover after the fourth week of January goes waste. The table below gives past data on total demand for the period from first week of December to first week of January, and from second week of January to fourth week of January, together with their respective chances of occurrence. The product can be purchased at a wholesale price of GHS60 per unit for a pack containing 600 products, GHS57 per unit for a pack containing 800 products, and GHS52 per unit for a pack containing 1000 products. The shop plans to sell the product for GHS80 per unit from first week of December to first week of January, and at a reduced price of 30% thereafter.
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1st week of December to 1st week of January |
2nd week of January to 4th week of January |
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Demand Probability |
Demand Probability |
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500. 0.1 |
320. 0.5 |
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600. 0.3 |
180. 0.3 |
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750. 0.4 |
130. 0.2 |
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800. 0.2 |
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i. What is the expected profit when a pack containing 600 products is ordered?
ii. What the expected profit when a pack containing 800 products is ordered?
iii. What is the expected profit when a pack containing 1000 products is ordered?
iv. What is the standard deviation of the profit when a pack of 800 is ordered? State any assumption you used in calculating this value and with justification.
v. What is the standard deviation of the profit when a pack of 1000 is ordered? Apply the same assumption you used in (iv) above.
vi. Which of the two, a pack of 800 or a pack of 1000 products should be ordered in order to minimize risk associated with profit? Give reasons for your answer.
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