Demand Probability

8000
10000
12000
14000
16000
18000
Average

11%
11%
28%
22%
18%
10%

Weighted Demand

880
1100
3360
3080
2880
1800
13100

Probability

This is the probabilistic forecast from examples 2-2 to 2-4

and the examples in Chapter 4.

Demand Scenarios
30%
25%
20%
15%
10%
5%
0%

8000 10000 12000 14000 1

Sales

Demand Scenarios

0 10000 12000 14000 16000 18000

Sales

These are the expected (or average) profit calculations for various different order levels
as described in examples 2-2 to 2-4
These are the cost parameters:
Item

Variable Production Cost

Fixed Production Cost
Selling Price
Salvage Value

Cost

$80.00
$100,000.00
$125.00
$20.00

These are the average revenue calculations:

Demand
8000
10000
12000
14000
16000
18000
Average Profit

Probability
11%
11%
28%
22%
18%
10%

5000
$125,000.00
$125,000.00
$125,000.00
$125,000.00
$125,000.00
$125,000.00
$125,000.00

6500
$192,500.00
$192,500.00
$192,500.00
$192,500.00
$192,500.00
$192,500.00
$192,500.00

8500
$230,000.00
$282,500.00
$282,500.00
$282,500.00
$282,500.00
$282,500.00
$276,725.00

Profit

Maximum:

Expected Profit
$400,000.00
$300,000.00
$200,000.00
$100,000.00
$0.00
5000

10000
Order Quantity

15000

10000
$140,000.00
$350,000.00
$350,000.00
$350,000.00
$350,000.00
$350,000.00
$326,900.00

11000
$80,000.00
$290,000.00
$395,000.00
$395,000.00
$395,000.00
$395,000.00
$348,800.00

12000
$20,000.00
$230,000.00
$440,000.00
$440,000.00
$440,000.00
$440,000.00
$370,700.00
$370,700

12500
-$10,000.00
$200,000.00
$410,000.00
$462,500.00
$462,500.00
$462,500.00
$366,950.00

13000
-$40,000.00
$170,000.00
$380,000.00
$485,000.00
$485,000.00
$485,000.00
$363,200.00

13500
-$70,000.00
$140,000.00
$350,000.00
$507,500.00
$507,500.00
$507,500.00
$359,450.00

14000
-$100,000.00
$110,000.00
$320,000.00
$530,000.00
$530,000.00
$530,000.00
$355,700.00

14500
-$130,000.00
$80,000.00
$290,000.00
$500,000.00
$552,500.00
$552,500.00
$340,400.00

15000
-$160,000.00
$50,000.00
$260,000.00
$470,000.00
$575,000.00
$575,000.00
$325,100.00

15500
-$190,000.00
$20,000.00
$230,000.00
$440,000.00
$597,500.00
$597,500.00
$309,800.00

16000
-$220,000.00
-$10,000.00
$200,000.00
$410,000.00
$620,000.00
$620,000.00
$294,500.00

16500
-$250,000.00
-$40,000.00
$170,000.00
$380,000.00
$590,000.00
$642,500.00
$269,750.00

This is the buy back contract example from Chapter 4

from the inventory chapter:

These are the cost and contract parameters:

Item

Retailer sells for:

Manufacturer sells for:
Salvage:
Manufacturer buy back:
Fixed Production Cost:
Variable Production Cost:

Price

$125.00
$80.00
$20.00
$55.00
$100,000.00
$35.00

NOTE: The Retailer can either salvage goods, or

the manufacturer will buy them back, and salvage them herself.

This is the retailer's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

11%
11%
28%
22%
18%
10%

Average Profit

5000
$225,000.00
$225,000.00
$225,000.00
$225,000.00
$225,000.00
$225,000.00
$225,000.00

6000
$270,000.00
$270,000.00
$270,000.00
$270,000.00
$270,000.00
$270,000.00
$270,000.00

7000
$315,000.00
$315,000.00
$315,000.00
$315,000.00
$315,000.00
$315,000.00
$315,000.00

8000
$360,000.00
$360,000.00
$360,000.00
$360,000.00
$360,000.00
$360,000.00
$360,000.00

5000
$125,000.00
$125,000.00
$125,000.00
$125,000.00
$125,000.00
$125,000.00
$125,000.00

6000
$170,000.00
$170,000.00
$170,000.00
$170,000.00
$170,000.00
$170,000.00
$170,000.00

7000
$215,000.00
$215,000.00
$215,000.00
$215,000.00
$215,000.00
$215,000.00
$215,000.00

8000
$260,000.00
$260,000.00
$260,000.00
$260,000.00
$260,000.00
$260,000.00
$260,000.00

$350,000.00

$440,000.00

$530,000.00

$620,000.00

Maximum:

This is the manufacturer's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

Average Profit

11%
11%
28%
22%
18%
10%

Maximum:

This is the expected (or average) total profit:

Total Average Profit:

Profit ($)

Profit vs Order Quantity

$1,200,000.00
$1,000,000.00
$800,000.00

Profit ($)

Profit vs Order Quantity

$1,200,000.00
$1,000,000.00
$800,000.00
$600,000.00
$400,000.00
$200,000.00
$0.00
5000

8000

11000

Quantity

14000

17000

salvage them herself.

Profit for a Given Retailer Order Level

9000
10000
11000
$335,000.00 $310,000.00 $285,000.00
$405,000.00 $450,000.00 $425,000.00
$405,000.00 $450,000.00 $495,000.00
$405,000.00 $450,000.00 $495,000.00
$405,000.00 $450,000.00 $495,000.00
$405,000.00 $450,000.00 $495,000.00
$397,300.00 $434,600.00 $464,200.00

12000
$260,000.00
$400,000.00
$540,000.00
$540,000.00
$540,000.00
$540,000.00
$493,800.00

13000
$235,000.00
$375,000.00
$515,000.00
$585,000.00
$585,000.00
$585,000.00
$503,800.00

14000
$210,000.00
$350,000.00
$490,000.00
$630,000.00
$630,000.00
$630,000.00
$513,800.00

15000
$185,000.00
$325,000.00
$465,000.00
$605,000.00
$675,000.00
$675,000.00
$508,400.00

16000
$160,000.00
$300,000.00
$440,000.00
$580,000.00
$720,000.00
$720,000.00
$503,000.00

$513,800

Profit for a Given Retailer Order Level

9000
10000
11000
$270,000.00 $280,000.00 $290,000.00
$305,000.00 $350,000.00 $360,000.00
$305,000.00 $350,000.00 $395,000.00
$305,000.00 $350,000.00 $395,000.00
$305,000.00 $350,000.00 $395,000.00
$305,000.00 $350,000.00 $395,000.00
$301,150.00 $342,300.00 $379,600.00

$698,450.00

$776,900.00

Dist. P

$843,800.00

12000
$300,000.00
$370,000.00
$440,000.00
$440,000.00
$440,000.00
$440,000.00
$416,900.00

13000
$310,000.00
$380,000.00
$450,000.00
$485,000.00
$485,000.00
$485,000.00
$444,400.00

14000
$320,000.00
$390,000.00
$460,000.00
$530,000.00
$530,000.00
$530,000.00
$471,900.00

15000
$330,000.00
$400,000.00
$470,000.00
$540,000.00
$575,000.00
$575,000.00
$491,700.00

16000
$340,000.00
$410,000.00
$480,000.00
$550,000.00
$620,000.00
$620,000.00
$511,500.00

$910,700.00

$948,200.00

$985,700.00

$1,000,100.00

$1,014,500.00
$1,014,500

Dist. P
Mfg. P
Total P.

17000

17000
$135,000.00
$275,000.00
$415,000.00
$555,000.00
$695,000.00
$765,000.00
$485,000.00

18000
$110,000.00
$250,000.00
$390,000.00
$530,000.00
$670,000.00
$810,000.00
$467,000.00

17000
$350,000.00
$420,000.00
$490,000.00
$560,000.00
$630,000.00
$665,000.00
$525,000.00

18000
$360,000.00
$430,000.00
$500,000.00
$570,000.00
$640,000.00
$710,000.00
$538,500.00
$538,500

$1,010,000.00

$1,005,500.00

This is the revenue sharing contract example from Chapter 4.

These are the cost and contract parameters:

Item

Retailer sells for:

Manufacturer sells for:
Salvage:
Revenue Sharing:
Fixed Production Cost:
Variable Production Cost:

Price

$125.00
$60.00
$20.00
15%
$100,000.00
$35.00

NOTE: The Retailer pays this percentage of revenue to

the manufacturer.

This is the retailer's expected (or average) profit calculations:

Demand
8000
10000
12000
14000
16000
18000

Probability
11%
11%
28%
22%
18%
10%

Average Profit

5000
$231,250.00
$231,250.00
$231,250.00
$231,250.00
$231,250.00
$231,250.00
$231,250.00

6000
$277,500.00
$277,500.00
$277,500.00
$277,500.00
$277,500.00
$277,500.00
$277,500.00

7000
$323,750.00
$323,750.00
$323,750.00
$323,750.00
$323,750.00
$323,750.00
$323,750.00

8000
$370,000.00
$370,000.00
$370,000.00
$370,000.00
$370,000.00
$370,000.00
$370,000.00

Maximum:

This is the manufacturer's expected (or average) profit calculations:

Demand
8000
10000
12000
14000
16000
18000

Probability
11%
11%
28%
22%
18%
10%

Average Profit

5000
$118,750.00
$118,750.00
$118,750.00
$118,750.00
$118,750.00
$118,750.00
$118,750.00

6000
$162,500.00
$162,500.00
$162,500.00
$162,500.00
$162,500.00
$162,500.00
$162,500.00

7000
$206,250.00
$206,250.00
$206,250.00
$206,250.00
$206,250.00
$206,250.00
$206,250.00

8000
$250,000.00
$250,000.00
$250,000.00
$250,000.00
$250,000.00
$250,000.00
$250,000.00

$350,000.00

$440,000.00

$530,000.00

$620,000.00

Maximum:

This is the expected (or average) total profit:

Total Average Profit:

Profit vs Order Quantity

Profit ($)

$1,200,000.00
$1,000,000.00
$800,000.00

Profit vs Order Quantity

Profit ($)

$1,200,000.00
$1,000,000.00
$800,000.00

D
M
T

$600,000.00
$400,000.00
$200,000.00
$0.00
5000

8000

11000

Quantity

14000

17000

of revenue to

Profit for a Given Retailer Order Level

9000
10000
11000
$330,000.00 $290,000.00 $250,000.00
$416,250.00 $462,500.00 $422,500.00
$416,250.00 $462,500.00 $508,750.00
$416,250.00 $462,500.00 $508,750.00
$416,250.00 $462,500.00 $508,750.00
$416,250.00 $462,500.00 $508,750.00
$406,762.50 $443,525.00 $470,800.00

12000
$210,000.00
$382,500.00
$555,000.00
$555,000.00
$555,000.00
$555,000.00
$498,075.00

13000
$170,000.00
$342,500.00
$515,000.00
$601,250.00
$601,250.00
$601,250.00
$501,200.00

14000
$130,000.00
$302,500.00
$475,000.00
$647,500.00
$647,500.00
$647,500.00
$504,325.00

15000
$90,000.00
$262,500.00
$435,000.00
$607,500.00
$693,750.00
$693,750.00
$488,475.00

$504,325

Profit for a Given Retailer Order Level

9000
10000
11000
$275,000.00 $300,000.00 $325,000.00
$293,750.00 $337,500.00 $362,500.00
$293,750.00 $337,500.00 $381,250.00
$293,750.00 $337,500.00 $381,250.00
$293,750.00 $337,500.00 $381,250.00
$293,750.00 $337,500.00 $381,250.00
$291,687.50 $333,375.00 $373,000.00

$698,450.00

$776,900.00

Dist. P

$843,800.00

12000
$350,000.00
$387,500.00
$425,000.00
$425,000.00
$425,000.00
$425,000.00
$412,625.00

13000
$375,000.00
$412,500.00
$450,000.00
$468,750.00
$468,750.00
$468,750.00
$447,000.00

14000
$400,000.00
$437,500.00
$475,000.00
$512,500.00
$512,500.00
$512,500.00
$481,375.00

15000
$425,000.00
$462,500.00
$500,000.00
$537,500.00
$556,250.00
$556,250.00
$511,625.00

$910,700.00

$948,200.00

$985,700.00

$1,000,100.00

Dist. P
Mfg. P
Total P.

17000

16000
$50,000.00
$222,500.00
$395,000.00
$567,500.00
$740,000.00
$740,000.00
$472,625.00

17000
$10,000.00
$182,500.00
$355,000.00
$527,500.00
$700,000.00
$786,250.00
$441,250.00

18000
-$30,000.00
$142,500.00
$315,000.00
$487,500.00
$660,000.00
$832,500.00
$409,875.00

16000
$450,000.00
$487,500.00
$525,000.00
$562,500.00
$600,000.00
$600,000.00
$541,875.00

17000
$475,000.00
$512,500.00
$550,000.00
$587,500.00
$625,000.00
$643,750.00
$568,750.00

18000
$500,000.00
$537,500.00
$575,000.00
$612,500.00
$650,000.00
$687,500.00
$595,625.00
$595,625

$1,014,500.00
$1,014,500

$1,010,000.00

$1,005,500.00

This is the global optimal solution in Example 4-4

manufacturing case from the inventory chapter:

These are the cost parameters:

Item

Price

Retailer sells for:

Salvage:
Fixed Production Cost:
Variable Production Cost:

$125.00
$20.00
$100,000.00
$35.00

This is the system's expected (or average) profit calculations:

Demand
8000
10000
12000
14000
16000
18000

Probability
11%
11%
28%
22%
18%
10%

Average Profit

5000
$350,000.00
$350,000.00
$350,000.00
$350,000.00
$350,000.00
$350,000.00
$350,000.00

6000
$440,000.00
$440,000.00
$440,000.00
$440,000.00
$440,000.00
$440,000.00
$440,000.00

7000
$530,000.00
$530,000.00
$530,000.00
$530,000.00
$530,000.00
$530,000.00
$530,000.00

8000
$620,000.00
$620,000.00
$620,000.00
$620,000.00
$620,000.00
$620,000.00
$620,000.00

System Profit ($)

Maximum:

Profit vs Order Quantity

$1,200,000.00
$1,000,000.00
$800,000.00
$600,000.00
$400,000.00
$200,000.00
$0.00
5000

8000

11000

Quantity

14000

17000

Profit for a Given Order Level

9000
10000
11000
$605,000.00 $590,000.00 $575,000.00
$710,000.00 $800,000.00 $785,000.00
$710,000.00 $800,000.00 $890,000.00
$710,000.00 $800,000.00 $890,000.00
$710,000.00 $800,000.00 $890,000.00
$710,000.00 $800,000.00 $890,000.00
$698,450.00 $776,900.00 $843,800.00

17000

12000
13000
14000
15000
$560,000.00 $545,000.00
$530,000.00 $515,000.00
$770,000.00 $755,000.00
$740,000.00 $725,000.00
$980,000.00 $965,000.00
$950,000.00 $935,000.00
$980,000.00 $1,070,000.00 $1,160,000.00 $1,145,000.00
$980,000.00 $1,070,000.00 $1,160,000.00 $1,250,000.00
$980,000.00 $1,070,000.00 $1,160,000.00 $1,250,000.00
$910,700.00 $948,200.00
$985,700.00 $1,000,100.00

16000
$500,000.00
$710,000.00
$920,000.00
$1,130,000.00
$1,340,000.00
$1,340,000.00
$1,014,500.00
$1,014,500

17000
$485,000.00
$695,000.00
$905,000.00
$1,115,000.00
$1,325,000.00
$1,430,000.00
$1,010,000.00

18000
$470,000.00
$680,000.00
$890,000.00
$1,100,000.00
$1,310,000.00
$1,520,000.00
$1,005,500.00

This is the payback contract example from Chapter 4.

These are the cost and contract parameters:

Item

Manufacturer sells for:

Distributor sells for:
Salvage:
Retailer pay back:
Fixed Production Cost:
Variable Production Cost:

Price

$80.00
$125.00
$20.00
$18.00
$100,000.00
$55.00

Note: Retailer pays this for each unit she doesn't purchase

This is the manufacturer's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

11%
11%
28%
22%
18%
10%

Average Profit

5000
$25,000.00
$25,000.00
$25,000.00
$25,000.00
$25,000.00
$25,000.00
$25,000.00

6000
$50,000.00
$50,000.00
$50,000.00
$50,000.00
$50,000.00
$50,000.00
$50,000.00

7000
$75,000.00
$75,000.00
$75,000.00
$75,000.00
$75,000.00
$75,000.00
$75,000.00

8000
$100,000.00
$100,000.00
$100,000.00
$100,000.00
$100,000.00
$100,000.00
$100,000.00

5000
$225,000.00
$225,000.00
$225,000.00
$225,000.00
$225,000.00
$225,000.00
$225,000.00

6000
$270,000.00
$270,000.00
$270,000.00
$270,000.00
$270,000.00
$270,000.00
$270,000.00

7000
$315,000.00
$315,000.00
$315,000.00
$315,000.00
$315,000.00
$315,000.00
$315,000.00

8000
$360,000.00
$360,000.00
$360,000.00
$360,000.00
$360,000.00
$360,000.00
$360,000.00

$250,000.00

$320,000.00

$390,000.00

$460,000.00

Maximum:

This is the distributor's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

Average Profit

11%
11%
28%
22%
18%
10%

Maximum:

This is the expected (or average) total profit:

Total Average Profit:

Profit ($)

Profit vs Order Quantity

$800,000.00
$700,000.00
$600,000.00
$500,000.00

Profit ($)

Profit vs Order Quantity

$800,000.00
$700,000.00
$600,000.00
$500,000.00
$400,000.00
$300,000.00
$200,000.00
$100,000.00
$0.00
5000

8000

11000

Quantity

14000

17000

doesn't purchase

Profit for a Given Manufacturing Level

9000
10000
11000
$83,000.00 $66,000.00 $49,000.00
$125,000.00 $150,000.00 $133,000.00
$125,000.00 $150,000.00 $175,000.00
$125,000.00 $150,000.00 $175,000.00
$125,000.00 $150,000.00 $175,000.00
$125,000.00 $150,000.00 $175,000.00
$120,380.00 $140,760.00 $156,520.00

12000
$32,000.00
$116,000.00
$200,000.00
$200,000.00
$200,000.00
$200,000.00
$172,280.00

13000
$15,000.00
$99,000.00
$183,000.00
$225,000.00
$225,000.00
$225,000.00
$176,280.00

14000
-$2,000.00
$82,000.00
$166,000.00
$250,000.00
$250,000.00
$250,000.00
$180,280.00

15000
-$19,000.00
$65,000.00
$149,000.00
$233,000.00
$275,000.00
$275,000.00
$175,040.00

$180,280

Profit for a Given Manufacturing Level

9000
10000
11000
$342,000.00 $324,000.00 $306,000.00
$405,000.00 $450,000.00 $432,000.00
$405,000.00 $450,000.00 $495,000.00
$405,000.00 $450,000.00 $495,000.00
$405,000.00 $450,000.00 $495,000.00
$405,000.00 $450,000.00 $495,000.00
$398,070.00 $436,140.00 $467,280.00

12000
$288,000.00
$414,000.00
$540,000.00
$540,000.00
$540,000.00
$540,000.00
$498,420.00

13000
$270,000.00
$396,000.00
$522,000.00
$585,000.00
$585,000.00
$585,000.00
$511,920.00

14000
$252,000.00
$378,000.00
$504,000.00
$630,000.00
$630,000.00
$630,000.00
$525,420.00

15000
$234,000.00
$360,000.00
$486,000.00
$612,000.00
$675,000.00
$675,000.00
$525,060.00

$525,420

$518,450.00

$576,900.00

Dist.

$623,800.00

$670,700.00

$688,200.00

$705,700.00
$705,700

$700,100.00

Dist.
P
Mfg.
P

17000

16000
-$36,000.00
$48,000.00
$132,000.00
$216,000.00
$300,000.00
$300,000.00
$169,800.00

17000
-$53,000.00
$31,000.00
$115,000.00
$199,000.00
$283,000.00
$325,000.00
$157,000.00

18000
-$70,000.00
$14,000.00
$98,000.00
$182,000.00
$266,000.00
$350,000.00
$144,200.00

16000
$216,000.00
$342,000.00
$468,000.00
$594,000.00
$720,000.00
$720,000.00
$524,700.00

17000
$198,000.00
$324,000.00
$450,000.00
$576,000.00
$702,000.00
$765,000.00
$513,000.00

18000
$180,000.00
$306,000.00
$432,000.00
$558,000.00
$684,000.00
$810,000.00
$501,300.00

$694,500.00

$670,000.00

$645,500.00

This is the cost sharing example from Chapter 4

These are the cost and contract parameters:

Item

Manufacturer sells for:

Distributor sells for:
Salvage:
Cost Sharing:
Fixed Production Cost:
Variable Production Cost:

Price

$62.00
$125.00
$20.00
33%
$100,000.00
$55.00

NOTE: The distributor pays this percentage of the cost.

This is the manufacturer's expected (or average) profit calculations:

Demand
8000
10000
12000
14000
16000
18000

Probability
11%
11%
28%
22%
18%
10%

Average Profit

5000
$25,750.00
$25,750.00
$25,750.00
$25,750.00
$25,750.00
$25,750.00
$25,750.00

6000
$50,900.00
$50,900.00
$50,900.00
$50,900.00
$50,900.00
$50,900.00
$50,900.00

7000
$76,050.00
$76,050.00
$76,050.00
$76,050.00
$76,050.00
$76,050.00
$76,050.00

5000
$224,250.00
$224,250.00
$224,250.00
$224,250.00
$224,250.00
$224,250.00
$224,250.00

6000
$269,100.00
$269,100.00
$269,100.00
$269,100.00
$269,100.00
$269,100.00
$269,100.00

7000
$313,950.00
$313,950.00
$313,950.00
$313,950.00
$313,950.00
$313,950.00
$313,950.00

$250,000.00

$320,000.00

$390,000.00

Maximum:

This is the distributor's expected (or average) profit calculations:

Demand
8000
10000
12000
14000
16000
18000

Probability
11%
11%
28%
22%
18%
10%

Average Profit
Maximum:

This is the expected (or average) total profit:

Total Average Profit:

Profit vs Order Quantity

Profit ($)

$800,000.00
$700,000.00
$600,000.00
$500,000.00

Profit vs Order Quantity

Profit ($)

$800,000.00
$700,000.00
$600,000.00
$500,000.00
$400,000.00
$300,000.00
$200,000.00
$100,000.00
$0.00
5000

8000

11000

Quantity

14000

17000

entage of the cost.

8000
$101,200.00
$101,200.00
$101,200.00
$101,200.00
$101,200.00
$101,200.00
$101,200.00

Profit for a Given Manufacturing Level

9000
10000
11000
$84,350.00 $67,500.00 $50,650.00
$126,350.00 $151,500.00 $134,650.00
$126,350.00 $151,500.00 $176,650.00
$126,350.00 $151,500.00 $176,650.00
$126,350.00 $151,500.00 $176,650.00
$126,350.00 $151,500.00 $176,650.00
$121,730.00 $142,260.00 $158,170.00

12000
$33,800.00
$117,800.00
$201,800.00
$201,800.00
$201,800.00
$201,800.00
$174,080.00

13000
$16,950.00
$100,950.00
$184,950.00
$226,950.00
$226,950.00
$226,950.00
$178,230.00

14000
$100.00
$84,100.00
$168,100.00
$252,100.00
$252,100.00
$252,100.00
$182,380.00

15000
-$16,750.00
$67,250.00
$151,250.00
$235,250.00
$277,250.00
$277,250.00
$177,290.00

$182,380

8000
$358,800.00
$358,800.00
$358,800.00
$358,800.00
$358,800.00
$358,800.00
$358,800.00

Profit for a Given Manufacturing Level

9000
10000
11000
$340,650.00 $322,500.00 $304,350.00
$403,650.00 $448,500.00 $430,350.00
$403,650.00 $448,500.00 $493,350.00
$403,650.00 $448,500.00 $493,350.00
$403,650.00 $448,500.00 $493,350.00
$403,650.00 $448,500.00 $493,350.00
$396,720.00 $434,640.00 $465,630.00

12000
$286,200.00
$412,200.00
$538,200.00
$538,200.00
$538,200.00
$538,200.00
$496,620.00

13000
$268,050.00
$394,050.00
$520,050.00
$583,050.00
$583,050.00
$583,050.00
$509,970.00

14000
$249,900.00
$375,900.00
$501,900.00
$627,900.00
$627,900.00
$627,900.00
$523,320.00

15000
$231,750.00
$357,750.00
$483,750.00
$609,750.00
$672,750.00
$672,750.00
$522,810.00

$523,320

$460,000.00

$518,450.00

$576,900.00

Dist.

$623,800.00

$670,700.00

$688,200.00

$705,700.00
$705,700

$700,100.00

Dist.
P
Mfg.
P

14000

17000

16000
-$33,600.00
$50,400.00
$134,400.00
$218,400.00
$302,400.00
$302,400.00
$172,200.00

17000
-$50,450.00
$33,550.00
$117,550.00
$201,550.00
$285,550.00
$327,550.00
$159,550.00

18000
-$67,300.00
$16,700.00
$100,700.00
$184,700.00
$268,700.00
$352,700.00
$146,900.00

16000
$213,600.00
$339,600.00
$465,600.00
$591,600.00
$717,600.00
$717,600.00
$522,300.00

17000
$195,450.00
$321,450.00
$447,450.00
$573,450.00
$699,450.00
$762,450.00
$510,450.00

18000
$177,300.00
$303,300.00
$429,300.00
$555,300.00
$681,300.00
$807,300.00
$498,600.00

$694,500.00

$670,000.00

$645,500.00

This is the global optimal solution in Example 4-10

These are the cost parameters:

Item

Distributor sells for:

Salvage:
Fixed Production Cost:
Variable Production Cost:

Price

$125.00
$20.00
$100,000.00
$55.00

This is the system's expected (or average) profit calculations:

Demand
8000
10000
12000
14000
16000
18000

Probability
11%
11%
28%
22%
18%
10%

Average Profit

5000
$250,000.00
$250,000.00
$250,000.00
$250,000.00
$250,000.00
$250,000.00
$250,000.00

6000
$320,000.00
$320,000.00
$320,000.00
$320,000.00
$320,000.00
$320,000.00
$320,000.00

7000
$390,000.00
$390,000.00
$390,000.00
$390,000.00
$390,000.00
$390,000.00
$390,000.00

8000
$460,000.00
$460,000.00
$460,000.00
$460,000.00
$460,000.00
$460,000.00
$460,000.00

System Profit ($)

Maximum:

Profit vs Order Quantity

$800,000.00
$700,000.00
$600,000.00
$500,000.00
$400,000.00
$300,000.00
$200,000.00
$100,000.00
$0.00
5000

8000

11000

Quantity

14000

17000

Profit for a Given Manufacturing Level

9000
10000
11000
$425,000.00 $390,000.00 $355,000.00
$530,000.00 $600,000.00 $565,000.00
$530,000.00 $600,000.00 $670,000.00
$530,000.00 $600,000.00 $670,000.00
$530,000.00 $600,000.00 $670,000.00
$530,000.00 $600,000.00 $670,000.00
$518,450.00 $576,900.00 $623,800.00

12000
$320,000.00
$530,000.00
$740,000.00
$740,000.00
$740,000.00
$740,000.00
$670,700.00

13000
$285,000.00
$495,000.00
$705,000.00
$810,000.00
$810,000.00
$810,000.00
$688,200.00

14000
$250,000.00
$460,000.00
$670,000.00
$880,000.00
$880,000.00
$880,000.00
$705,700.00
$705,700

17000

15000
$215,000.00
$425,000.00
$635,000.00
$845,000.00
$950,000.00
$950,000.00
$700,100.00

16000
17000
$180,000.00
$145,000.00
$390,000.00
$355,000.00
$600,000.00
$565,000.00
$810,000.00
$775,000.00
$1,020,000.00
$985,000.00
$1,020,000.00 $1,090,000.00
$694,500.00
$670,000.00

18000
$110,000.00
$320,000.00
$530,000.00
$740,000.00
$950,000.00
$1,160,000.00
$645,500.00