Natasha\'s Flowers, a local florist, purchases fresh flowers each day at the loc
ID: 2781936 • Letter: N
Question
Natasha's Flowers, a local florist, purchases fresh flowers each day at the local flower market. The buyer has a budget of $940 per day to spend. Different flowers have different profit margins, and also a maximum amount the shop can sell. Based on past experience the shop has estimated the following NPV of purchasing each type:
NPV per
bunch
Cost per
bunch
Max.
Bunches
Roses
$3
$23
25
Lilies
$10
$24
10
Pansies
$6
$29
10
Orchids
$20
$82
5
What combination of flowers should the shop purchase each day?
The profitability index for each choice is: (Round to three decimal places.)
NPV per
bunch
Cost per
bunch
Max.
Bunches
Roses
$3
$23
25
Lilies
$10
$24
10
Pansies
$6
$29
10
Orchids
$20
$82
5
Explanation / Answer
Profitability Index for Bunch of Roses = NPV per Bunch/Cost per Bunch = 3/23 = 0.130
Profitability Index for Bunch of Lilies = NPV per Bunch/Cost per Bunch = 10/24 = 0.417
Profitability Index for Bunch of Pansies = NPV per Bunch/Cost per Bunch = 6/29 = 0.207
Profitability Index for Bunch of Orchids = NPV per Bunch/Cost per Bunch = 20/82 = 0.244
So, preference wise, Lilies>Orchids>Pansies>Roses
So, shop will purchase the maximum bunches of Lilies 1st.
Maximum Bunches of Lilies = 10 & Cost per Bunch = $24. So, Cost incurred = 10 * 24 = $240
Balance amount = 940 - 240 = 700
Next the shop will purchase maximum bunches of Orchids.
Maximum Bunches of Orchids = 5 & Cost per Bunch = $82. So, cost incurred = 5 * 82 = 410
Balance Amount = 700 - 410 = 290
Next shop will try to buy maximum bunches of Pansies.
Maximum Bunches of Pansies = 10 & Cost per Bunch = $29. So, Cost incurred = 10 * 29 = 290
Balance amount = 290 - 290 = 0
So, the shop should buy 10 Bunch of Lilies, 5 Bunch of Orchids and 10 Bunch of Pansies.
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