Angie Pansy manages a downtown flower shop. Flowers must be ordered three days i
ID: 413910 • Letter: A
Question
Angie Pansy manages a downtown flower shop. Flowers must be ordered three days in advance from her supplier in Mexico. Leading up to most holidays (such as Valentine’s Day), sales are almost entirely last-minute. Angie must decide how many dozen roses (25, 50, 100, or 125) to order to meet customer demand. She buys roses for $17 per dozen and sells them for $45 per dozen.
Roses demanded
25 dozen
50 dozen
100 dozen
125 dozen
Roses ordered
25 dozen
50 dozen
100 dozen
125 dozen
Assume the probability of demand is determined as in the table below.
Demand
25 dozen
50 dozen
100 dozen
125 dozen
Probability
.10
.25
.45
.20
Using the probabilities given:
a. Calculate the EMV for each alternative order size.
b. How many dozen roses should be ordered if the EMV was used?
c. Calculate the EVwithPI and the EVof PI for this problem.
d. How would you interpret the EVof PI?
Roses demanded
25 dozen
50 dozen
100 dozen
125 dozen
Roses ordered
25 dozen
50 dozen
100 dozen
125 dozen
Explanation / Answer
A.
The profits are:
So, we get EMV
B.
So as per this the best option is 100 roses.
C.
The perfect information is best profit at each order and when that information is available then (Pi*Profit)
So 2380
D.
Hence the EVofPI = EVWPI - EVwoPI= 2380-1900 =
Roses demanded Supply/Demand 25 50 100 125 Cost 17 25 700 700 700 700 SP 45 50 275 1400 1400 1400 Margin 28 Roses ordered 100 -575 550 2800 2800 125 -1000 125 2375 3500