Problem:
A retail store purchases computer software from a distributor for a resale. For an upcoming promotion, the retailer needs to determine the best order size for a one-time purchase. One of the products is a word processing software program that will have a special sale price of $350. The retailer estimates the probabilities for selling various quantities as follows:
|
Quantity
|
Probability
|
|
50
|
0.10
|
|
55
|
0.20
|
|
60
|
0.20
|
|
65
|
0.30
|
|
70
|
0.15
|
|
75
|
0.05
|
|
1.00
|
The program can be purchased from the distributor for $250 each, but there is a restocking charge of 20 percent of the purchase price for the return to the distributor for any unsold programs.
Required:
Question 1) What size of a purchase order should the retailer commit to? Solve the given numerical problem and illustrate step by step calculation.