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Home Q & A Board Other Fields Homework Help Business Economics
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dxpayne dxpayne
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Posts: 930
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6 years ago
Produce Company needs to know the pounds of apples to have on hand each day. Each pound of apples costs $0.50 and can be sold for $0.80. Unsold apples are worthless at the end of the day. The following demands were found after studying the last six month's sales:

   200 pounds of apples 30% of the time
   300 pounds of apples 40% of the time
   400 pounds of apples 30% of the time

Required:
Determine whether Produce Company should order 200, 300, or 400 pounds of apples.
Textbook 
Cost Accounting: A Managerial Emphasis, Canadian Edition

Cost Accounting: A Managerial Emphasis, Canadian Edition


Edition: 7th
Authors:
Read 100 times
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Replies
wrote...
#1
6 years ago
Quantity
   Ordered       Demand Probability       Expected Value
   200   300   400
   200   $60   $60   $60   $60.00
   300   10   90   90   $6600
   400   (40)   40   120   $40.00

   p   .30   .40   .30

Demand example: 300 units ordered; but demand is 200 units:
   ($0.30 × 200) - ($0.50 × 100) = $10
Expected value example:
   Order 400: ($(40) × 0.30) + ($40 × 0.40) + ($120 × 0.30) = $40

Should order 300 pounds of apples to maximize profit.
dxpayne Author
wrote...
#2
5 years ago
I see. Hmm...

Thanks for confirming, will mark this solved.
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