# Question

The demand for a product of Carolina Industries varies greatly from month to month. The probability distribution in the following table, based on the past two years of data, shows the company’s monthly demand.

Unit Demand Probability

300 ........... .20

400 ........... .30

500 ........... .35

600 ........... .15

a. If the company bases monthly orders on the expected value of the monthly demand, what should Carolina’s monthly order quantity be for this product?

b. Assume that each unit demanded generates $70 in revenue and that each unit ordered costs $50. How much will the company gain or lose in a month if it places an order based on your answer to part (a) and the actual demand for the item is 300 units?

Unit Demand Probability

300 ........... .20

400 ........... .30

500 ........... .35

600 ........... .15

a. If the company bases monthly orders on the expected value of the monthly demand, what should Carolina’s monthly order quantity be for this product?

b. Assume that each unit demanded generates $70 in revenue and that each unit ordered costs $50. How much will the company gain or lose in a month if it places an order based on your answer to part (a) and the actual demand for the item is 300 units?

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