Question

The demand for a product of carolina industries varies greatly from month to month. the probability distribution in the following table, based on the past two years of data, shows the company's monthly demand.

unit demand probability
300 0.15
400 0.30
500 0.35
600 0.20

if the company bases monthly orders on the expected value of the monthly demand, what should carolina's monthly order quantity be for this product? (enter your answer in a whole number (no decimals))

Answer 1

Carolina's monthly order quantity should be 460 units (rounded to the nearest whole number).

How is that so?

To reckon this, we take the average of the unit demand weight by the possibility of each demand occurring.

Beneath is the step by step calculation:

Expected value = (300 units * 0.15 probability) + (400 units * 0.30 probability) + (500 units * 0.35 probability) + (600 units * 0.20 probability)

Expected value = 45 + 120 + 175 + 120

Expected value = 460 units

Therefore, Carolina's monthly order quantity should be 460 units (rounded to the nearest whole number).