Reference no: EM132514326
Scenario: Carrier sells air conditioning units to distributors. Ahead of the upcoming summer, demand probability is 40,000 units (25%), 55,000 units (35%), 70,000 units (25%), and 80,000 units (15%).
• Fixed cost of production = $500,000
• Variable cost of production per unit = $1,200
• Per unit selling price= $1500
• Salvage value for unsold products = $900
Answer the following questions:
1. If the manufacturer is considering production quantities of 40,000 units or 80,000 units, assuming 90% of product will be sold and 10% will be salvaged, what is the profit per unit? Which option would you select and why?
2. The manufacturer is considering production quantities of 40,000 units or 80,000 units. For the 40,000 unit plan, assume 95% of product will be sold and 5% will be salvaged; for the 80,000 unit plan, assume 80% of product will be sold and 20% will be salvaged. What is the profit per unit? Which option would you select and why?
3. With an expected demand of 55,000 units for the summer (May-July), a maximum demand of 80,000 units for the summer, and a 2-week lead time, calculate the amount of safety stock needed to cover demand.
4. If the manufacturer chooses to produce 70,000 units but there is demand for 80,000 units, how much total profit and per-unit profit would be lost?
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