Consider the Following Data That Illustrates Demand,production Costs,and Expected Capacity

question 24

Essay

Consider the following data that illustrates demand,production costs,and expected capacity for a given product.

$\begin{array}{lllll} &&\text { Month }\\& 1 &2 &3&4 \\\text { Demand (units) } & 100 & 125 & 200 & 175 \\\text { Production cost/Unit } & \$ 20 & \$ 25 & \$ 30 & \$ 35 \\\text { Production Capacity (units) } & 150 & 150 & 150 & 150\end{array}$ .

Inventory carrying costs are estimated at $4 per unit per month.The firm wants to produce at least 50 units per month to uniformly utilize its existing resources.Assume that beginning inventory is zero.Use Excel to formulate and solve this problem to determine how many units of the product should be produced monthly to meet the expected demand at minimal cost.

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Definitions:

Expected Monetary Value

The predicted value of a financial opportunity when accounting for all possible outcomes and their probabilities.

Optimal Act

The best possible action or decision, typically the one that maximizes the expected outcome or utility.

Bayesian Statistics

A statistical method that applies probability to statistical problems, focusing on the posterior distribution of parameters by incorporating prior knowledge.

Probability Distributions

Mathematical functions that provide the probabilities of occurrence of different possible outcomes for an experiment.