RISK TAKING & DECISION MAKING

ASSIGNMENT 01

You run a Pharmacy and have to decide how many packets of face masks to order for resale during this Corona virus pandemic period. You can only order in batches of 100. If only 100 batches are ordered, it will cost K10 per unit, if 200 or more, K9 per unit; and if 300 or more, it will cost K8.50 per unit.

The results of a market survey you conducted show that the potential levels of demand are 100, 150, or 200; at 50%, 20%, and 10% probability, respectively. The selling price is K15 per unit and any stock unsold by the end of peak period for the pandemic will be sold for half the price. There is a cost of K0.55 per unit for any stock-outs experienced.

Required:

Using Microsoft Excel:

1. Calculate the EMV of each alternative order level and the recommended order level.
2. What is the net earnings at the recommended order level?
3. Using Data Table Analysis, demonstrate the sensitivity of net earnings to both the selling price and the cost price at the recommended order level.
4. Determine the order level at which net earnings are zero (breakeven order level).