Your pharmacy must order medication for sinusitis for the upcoming cool season which typically lasts three...

 

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Your pharmacy must order medication for sinusitis for the upcoming cool season which typically lasts three months. Capsules must be ordered by the case in lots of 20. Each case contains 10 capsules and the distributor offers a price per case based on the quantity ordered as shown in the following schedule $700 per case for 20 cases $675 per case for 40 cases $625 per case for 80 cases $650 per case for 60 cases Capsules are sold for $100 each. Any capsules left over at the end of the season are discounted and sold for $40 each. Experience has shown that all leftover capsules are sold at that price. If the pharmacy runs out of capsules during the season, patients go to other pharmacies to fill their prescription. This loss of "goodwill" with these customers is estimated to result in a net cost to the business of $50 for each customer. The demand quantity projected for capsules this season are a 10% chance to sell 100, a 45% chance to sell 300, a 40% chance to sell 500 and a 5% chance to sell 700. How many cases do you recommend ordering? Explain using a decision tree and all the decision criteria applicable HELP/HINT LA PHARMACIA financial analysis > Orders must be placed by the case in lots of 20; there are 10 capsules/case Capsules are normally sold for $100 each; when discounted, for $40 each > Inability to meet demand loses customer goodwill estimated to cost $50 each ➤ Demand is the state of nature for the pharmacy as it cannot control that ➤ The decision seeks to maximise Income (+ve-profit, -ve-loss) whereby - [Total Expenses] Income [Total Revenues] = [Sales rev + Discount rev] [Purchase cost + Goodwill loss] > Pharmacia has to make a decision on the quantity to order now, seeking to optimise the trade-off between overstocking (ordering more than the actual demand) and understocking (ordering less than the actual demand) → The cost of overstocking means you sell the remainder at a discounted price → The cost of understocking is a loss of goodwill due to unmet demand Your pharmacy must order medication for sinusitis for the upcoming cool season which typically lasts three months. Capsules must be ordered by the case in lots of 20. Each case contains 10 capsules and the distributor offers a price per case based on the quantity ordered as shown in the following schedule $700 per case for 20 cases $675 per case for 40 cases $625 per case for 80 cases $650 per case for 60 cases Capsules are sold for $100 each. Any capsules left over at the end of the season are discounted and sold for $40 each. Experience has shown that all leftover capsules are sold at that price. If the pharmacy runs out of capsules during the season, patients go to other pharmacies to fill their prescription. This loss of "goodwill" with these customers is estimated to result in a net cost to the business of $50 for each customer. The demand quantity projected for capsules this season are a 10% chance to sell 100, a 45% chance to sell 300, a 40% chance to sell 500 and a 5% chance to sell 700. How many cases do you recommend ordering? Explain using a decision tree and all the decision criteria applicable HELP/HINT LA PHARMACIA financial analysis > Orders must be placed by the case in lots of 20; there are 10 capsules/case Capsules are normally sold for $100 each; when discounted, for $40 each > Inability to meet demand loses customer goodwill estimated to cost $50 each ➤ Demand is the state of nature for the pharmacy as it cannot control that ➤ The decision seeks to maximise Income (+ve-profit, -ve-loss) whereby - [Total Expenses] Income [Total Revenues] = [Sales rev + Discount rev] [Purchase cost + Goodwill loss] > Pharmacia has to make a decision on the quantity to order now, seeking to optimise the trade-off between overstocking (ordering more than the actual demand) and understocking (ordering less than the actual demand) → The cost of overstocking means you sell the remainder at a discounted price → The cost of understocking is a loss of goodwill due to unmet demand

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Decision Tree Analysis for Sinusitis Medication Order Decision Quantity of cases to order States of ... View the full answer