Question
Lilys Gourmet Cream Shop offers a variety of gourmet ice cream and shakes. Although Lilys competes with other ice cream shops and frozen yogurt stores,
Lilys Gourmet Cream Shop offers a variety of gourmet ice cream and shakes. Although Lilys competes with other ice cream shops and frozen yogurt stores, none of them offer gourmet ice creams with a wide variety of different flavors. The shop is also located in an upscale area and therefore can command higher prices. The owner is a culinary school graduate without
much business experience and has engaged the services of one of her friends who has recently obtained
an MBA to assist her with financial analysis of the business and evaluation of the profitability of
introducing a new product. The shop is open during the spring and summer, with higher sales in the
summer season. Based on past observation, Lily has defined three sales scenarios for the new product:
Summer:
High = 3,000 units
Most likely = 2,500 units
Low = 2,100 units
Spring:
High = 2,500 units
Most likely = 1,500 units
Low = 1,000 units
The expected price is $3.00. However, the unit costs is uncertain, and driven by costs of the ingredients
she has to buy for the product. This is estimated to be between $1.40 and $2.00, with a most likely value
of $1.50 in the summer, but in the spring, the most likely cost is $2.00 because the ingredients are more
difficult to obtain then. Fixed costs are estimated to be $2,600. Find the distribution of profit for each
season and the annual profit distribution using 200 trials for each
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