Question on probability

Carson Products sells sweatshirts and is preparing for a World Cup Soccer match. The cost per sweatshirt varies with the quantity purchased as follows:

Quantity                      Unit cost

4000                            $14

5000                            $13.5   

6000                            $13 

7000                            $12.5 

 

 

               

   Carson must purchase the shirts one month before the game and has analyzed

   the market and estimated sales levels as follows.

 

Unit sales              4000           5000           6000           7000

Probability               15%           20%             35%              30%

               

The estimated selling price is $25 for sales made before and at the game day. 

 Any shirts remaining after game day can be sold at wholesale to a local 

 discount store for $10.

 The expected profit if Carson purchased 6,000 shirts is :

  • $69,000.
  • $72,000.
  • $64,500.
  • $66,000.

 I am not able to arrive at correct answer which is $64,500.  I request anyone to please help.

 

Thanks

Replies (4)

Expected Demand =  sales quantity x Probability

 =  4000 x 15% +5000 x 20% +6000 35% + 7000x30% = 5800 units

 

 

Computation unit sold at reduced price 

Particulars   units
Quantity ordered    6000 
Quantity sold for @ 25 per unit     5800 
Quantity sold for @ 10 per unit  6000-200 200 

 

Computation of expected Profit 

sales  5800 x 25 + 200 x 10   147000
Less: cost  [4000 x 14 + 1000 x 13.50 + 1000 * 13.00] 82500
Profit 147000 - 78000 64500









 

 

                                     

Dear Anil,

I am not sure but what I understand is

Expected Return = ∑PR

Where,

P = Probability

R = Return or Profit

The Answer can be

 

Unit Cost Total Cost Selling Price Sales Profit Probability Expected Return
4000         14.00    56,000.00         25.00        100,000.00      44,000.00               0.15 6600
5000         13.50    67,500.00         25.00        125,000.00      57,500.00               0.20 11500
6000         13.00    78,000.00         25.00        150,000.00      72,000.00               0.35 25200
7000         12.50    87,500.00         25.00        175,000.00      87,500.00               0.30 26250
            1

69550

 

=72000*0.90 = $64800

Dear Mr.Manamohan,

 

Your answer matches the answer required. You arrived at correct answer.

 

I just want to know -

 

I had taken purchase value as 6000 units *$13 = $78000.

 

Please let me know what is wrong in taking flat rate of $13? The question does not say you have to go step wise ( like for 4000 how much, next 1000 how much and so on...)

 

Thanks.

 

Originally posted by : Anil

Dear Mr.Manamohan,

 

Your answer matches the answer required. You arrived at correct answer.

 

I just want to know -

 

I had taken purchase value as 6000 units *$13 = $78000.

 

Please let me know what is wrong in taking flat rate of $13? The question does not say you have to go step wise ( like for 4000 how much, next 1000 how much and so on...)

 

Thanks.

 

It is just a assumption , actually  previously I did a sum like that , Surely you can take $ 13 for entire 6000 units and in such a case answer will be $ 69000.


whatever you do , state your assumption in exam clearly 

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