The demand for a product of Carolina Industries varies greatly from month to month. The probability distribution in the following table, based on the past two years of data, shows the company's monthly demand. Unit Demand Probability 300 0.15 400 0.25 500 0.35 600 0.25 (a) If the company bases monthly orders on the expected value of the monthly demand, what should Carolina's monthly order quantity be for this product? (b) Assume that each unit demanded generates $70 in revenue and that each unit ordered costs $50. How much will the company gain or lose in a month (in dollars) if it places an order based on your answer to part (a) and the actual demand for the item is 300 units?
The demand for a product of Carolina Industries varies greatly from month to month. The probability distribution in the following table, based on the past two years of data, shows the company's monthly demand. Unit Demand Probability 300 0.15 400 0.25 500 0.35 600 0.25 (a) If the company bases monthly orders on the expected value of the monthly demand, what should Carolina's monthly order quantity be for this product? (b) Assume that each unit demanded generates $70 in revenue and that each unit ordered costs $50. How much will the company gain or lose in a month (in dollars) if it places an order based on your answer to part (a) and the actual demand for the item is 300 units?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter16: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 36P: Faldo Company produces a single product. The projected income statement for the coming year, based...
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