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Solved: Palmer Jam Company is a small manufacturer of several different jam products One product

MSD340 2017Summer OL1 Nyree Dowa 8/16/17 7.10 PM Test: Final Exam 02 06:06 Submit Test This Question: 9 pts 24 of 24 (0 complete) ▼ This Test: 105 pts possible Palmer Jam Company is a small manufacturer of several different jam products One product is an organic jam that has no preservatives, manufacture each month. The probability that demand will be 5 cases is case is 500. Unfortunabely, any cases not sold by the end of the month are of no value as a result of spolage Based on the given information, Susans conditional profits table for jam is sold to retal outlets Susan Palmer must decide how many cases of jam to 0 0s for 6 cases t s 0 2040and for B cases 1 03 The cost f every case a s0, and the pice Susan getbs tor each 5 cases 6 cases 7 cases 8 cases Produce p-00020040 035 5cases □ □ 6 cases 7 cases □ □ □ 8 cases ▼eases he number of cases that Susan should produce to achieve man m expeded vale Evnal he EMV of stocking this number of cases is $(round your answer to the nearest whole number) ter your answer in each of the answer boxes End Pgup PgDn Home F5
Palmer Jam Company is a small manufacturer of several different jam products One product is an organic jam that has no preservatives, sold to retail outlets. Susan Palmer must decide how many cases of jam to manufacture each month. The probability that demand will be 5 cases is case is 0.05, for 6 cases it is 0.20, for 7 cases it is 0.40, and for 8 cases it is 0.35. The cost of every case is $50, and the price Susan gets for each case is &90. Unfortunately, any cases not sold by the end of the month are of no value as a result of spoilage. Based on the given information, Susan’s conditional profits table for jam is: The number of cases that Susan should produce to achieve man m expected vale (EMV)is __ cases. The EMV of stocking this number of cases is $ __ (round your answer to the nearest whole number).

Expert Answer

Conditional profit table for jam is

Produce Demand
5 cases 6 cases 7 cases 8 cases the expected monetary value (EMV) for each alternative
P=0.05 P=0.20 P=0.40 P=0.35
5 cases 200 200 200 200 200
6 cases 150 240 240 240 235.5
7 cases 100 190 280 280 253
8 cases 50 140 230 320 234.5

Calculation if 5 cases produced:

(5/5 cases) = Revenue – cost = $90 *5 -$50 *5 = $200 (profit)

(5/6 cases) = $90 *5 -$50 *5 = $200

(5/7 cases) = $90 *5 -$50 *5 = $200

(5/8 cases) = $90 *5 -$50 *5 = $200

[Note: the maximum sale will be equal to production even if demand is higher)

The expected monetary value (EMV) for each alternative

= $200 * 0.05 + $200 * 0.20 + $200 *0.40 + $200 *0.35 = $200

Similarly we can calculate if 6, 7 and 8 cases are produced (lets calculate for 7 also)

(7/5 cases) = $90 *5 -$50 *7 = $100

(7/6 cases) = $90 *6 -$50 *7 = $190

(7/7 cases) = $90 *7 -$50 *7 = $280

(7/8 cases) = $90 *7 -$50 *7 = $280

Expected Value of number of cases demanded = 5 *0.05 + 6 * 0.20 + 7 * 0.40 + 8 * 0.35 = 7.05 cases or 7 cases (nearest whole number) of Jam should Susan manufacture each month

The number of cases that Susan produce to achieve maximum expected value (EMV) is 7 cases as it has maximum expected profit (refer the above table)

The EMV of stocking this number of cases is

= $100 * 0.05 + $190 * 0.20 + $280 *0.40 + $280 *0.35 = $253

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