1. buying now rather than waiting until next year would cost 124000. 4 The Sales Manager proposes that the company wait

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1 Buying Now Rather Than Waiting Until Next Year Would Cost 124000 4 The Sales Manager Proposes That The Company Wait 1 (84.41 KiB) Viewed 71 times

1. buying now rather than waiting until next year would cost 124000. 4 The Sales Manager proposes that the company wait until an accurate long range weather forecast is available for August, since demand depends heavily on the weather, with hot dry months leading to high demand. Such a forecast will be available in July. One problem is that it might be the case that other brewers had bought all of the available kegs by this time and the Operations Manager estimates a probability of 0.8 of getting the kegs if they wait until July. The Sales Manager produces an interim forecast, with no knowledge of the weather, of how good sales are likely to be in August. She estimates that they will be at least 10% higher with probability 0.5, they will increase by a lower amount with probability 0.4, and there will be no increase with probability 0.1. The Data Processing Manager suggests three possible strategies: buying 0. 4000 or 8000 kegs immediately. The associated change in profit from these three strategies were estimated, based upon the assumption that with a 10% sales increase 8000 extra kegs will be used (if available), and for a lower increase 4000 extra kegs will be used (if available), with an associated profit of £7 per keg. These are summarised in Table 1 The Sales Manager suggests that it might still be better to wait for the weather forecast in July, and run the risk of the kegs not being available. Whether it is best to do so depends upon how accurate the forecasts are. The data in Table 2 give some data on the recent performance of the forecasts. Number of kegs Increase on last year purchased Up to 10 % Over 10 % 0 0 0 0 4000 - 12000 16000 16000 8000 -24000 4000 32000 None Table 1: Predicted changes in profit (in £) for combinations of different immediate purchasing strategies and sales increases. Actual increase Predicted increase Total months over the previous year None Up to 10 % Over 10 % > 10% 2 6 15 23 7 21 7 35 0 14 7 5 26 < 10% Table 2: Sales over the last 84 months. (24 marks)