John is looking into buying a used car

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Reference no: EM13153894

1. John is looking into buying a used car. John has two options:
- Honda Civic at 15000$ which gives a mileage of 26 miles/Gallon. - Toyota Corolla at 20000$ which gives a mileage of 33 miles/Gallon.
John is not sure about both the mileage and fuel price. The uncertainty of mileage is that of Table and Fuel price uncertainty follows beta distribution with pessimistic price being 3.92$/Gallon, most likely being 3.55$/Gallon and optimistic price being 3.01$/Gallon.
1. Determine the low cost car for John and draw a graph illustrating a crossover or indifference or break even point?
Table
Mileage and their probabilities
Probability John would be travelling
0.1 50000 miles
0.3 75000 miles
0.35 100000 miles
0.25 200000 miles

Question 2.
The annual demand, ordering cost, and the annual inventory carrying cost rate for a certain item are D = 600 units, S = $20/order and I = 20% of item price. Price is established by the Table 3 quantity discount schedule. What should the order quantity be in order to minimize the total annual cost?

Quantity discount schedule
Quantity 1 to 49 50 to 249 250 and up
Price $5.00 per unit $4.50 per unit $4.10 per unit

Reference no: EM13153894

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