Lakeside Bakery bekes fresh pies every morning. The daily demand for its apple p

Question

Lakeside Bakery bekes fresh pies every morning. The daily demand for its apple pies is a random variable with (discrete) distribution, based on past. experxience, given by Each apple pie costs the bakery.$6.75 to make and is sold for $17.95. Unsold apple pies at the end of the day are purchased by a nearby soup kitchen for 99 cents each. Assume no goodwill cost. a. If the company decided to bake 15 apple pies each day, "what would ha its expected profit? Based ou the demand distribution above,. how many apple pies should the company bake each day to maximize its expected profit? The annual demand for a product is 15.600 units The weekly demand is 300 units with a stancard deviation of 90 units. cost to place an order is S31.20, and the time from ordering to receipt is four annual inventory carrying cost is $0.10 per unit.

Explanation / Answer

a.

If company bakes 15 apples there is 25% chance of selling all and Total sales in that case would be  $ 269.85

Cost of production is $ 101.25

There is 75% chance of apples not getting sale - Total revenue in that case - 15*0.99 = $14.85

Profit = 269.85 + 14.85 - 101.25 = $ 183.45

b.

Multiple total sales at each scenario by probability demand to come with above table. From table above it is clear that  maximum profit is either by producing 15 or 25 apples.

Apple Demand probability Cost of production - $6.75 Total Sales (Selling price - $17.99) 5 10% 33.75 89.95 10 20% 67.5 179.9 15 25% 101.25 269.85 20 25% 135 359.8 25 15% 168.75 449.75 30 5% 202.5 539.7

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