Domestic revenue and overseas revenue

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Reference no: EM132258742

Monsanto sells genetically modified seed to farmers. It needs to decide how much seed to put into a warehouse to serve demand for the next growing season. It will make one quantity decision. It costs Montanso $8 to make each kilogram (kg) of seed. It sells each kg for $45. If it has more seed than demanded by the local farmers, the remaining seed is sent overseas. Unfortunately, it only earns $3 per kg from the overseas market (but this is better than destroying the seed because it cannot be stored until next year). If demand exceeds its quantity, then the sales are lost—the farmers go to another supplier. As a forecast for demand, it will use a normal distribution with a mean of 300,000 and a standard deviation of 100,000.

a) If it puts 400,000 kg in the warehouse, what is their expected revenue (include both domestic revenue and overseas revenue)?

b) How many kilograms should it place in the warehouse if it wants to minimize its inventory while ensuring that the stockout probability is no greater than 10 percent?

c) What is the maximum profit for this seed?

Reference no: EM132258742

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