Freddie the newsboy runs a newstand. Because of a nearby financial services offi

Question

Freddie the newsboy runs a newstand. Because of a nearby financial services office, one of the newspapers he sells is the daily Financial Journal. He purchases copies of this newspaper from its distributor at the beginning of each day for $1.50 per copy, sells it for $2.50 each, and then receives a refund of $0.50 from the distributor the next morning for each unsold copy. The number of requests for this newspaper range from 15 to 18 copies per day. Freddie estimates that there are 15 requests on 40 percent of the days, 16 requests on 20 percent of the days, 17 requests on 30 percent of the days, and 18 requests on the remaining days.

Use the stochastic single-period model for perishable products to determine Freddie’s optimal order quantity

Explanation / Answer

Demand Probability Cumulative Probability Expected Sales Revenue -Sales to Customer Revenue -Sales to Distributor Total Revenue Cost Profit A B C D E = D * $2.50 F = (A-D)*$0.50 G = E + F H = A * $1.50 I = G - H 15 0.40 1.00 15.00 $37.50 $0.00 $37.50 $22.50 $15.00 16 0.20 0.60 15.60 $39.00 $0.20 $39.20 $24.00 $15.20 17 0.30 0.40 16.00 $40.00 $0.50 $40.50 $25.50 $15.00 18 0.10 0.10 16.10 $40.25 $0.95 $41.20 $27.00 $14.20 Sample computation for demand = 16: Expected number sold = 15(0.40)+16(0.60) = 15.60 Revenue from sold items=15.60(2.50)=$39 Revenue from unsold items=(16-15.60)(0.50)=$0.20 Total revenue=39 + .20 = $39.20 Cost = 16 * 1.50 = $24 Profit = $ 39.20 - $24 = $15.20

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.