Expected local sales and expected overseas sales of seed

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Reference no: EM132197673

Montanso is a large bio firm that sells genetically modified seed to farmers. Montanso needs to decide how much seed to put into a warehouse to serve demand for the next growing season. They will make one quantity decision. It costs Montanso $16 to make each kilogram (kg) of seed. They sell each kg for $90. If they have more seed than demanded by the local farmers, the remaining seed is sent overseas. Unfortunately, they only earn $6 per kg from the overseas market (but this is better than destroying the seed because it cannot be stored until next year). If local demand exceeds their quantity, then the sales are lost – the farmers go to another supplier. As a forecast for local demand they will use a normal distribution with a mean of 300,000 kgs and a standard deviation of 100,000 kgs.

(a) Suppose Montanso places 400,000 kilograms in their warehouse. Calculate the expected local sales of seed and the expected overseas sales of seed. Would these sales values increase, decrease, or remain unchanged if the standard deviation of demand decreases?

Reference no: EM132197673

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