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ESI 6323 HW8 Word document 2

# ESI 6323 HW8 Word document 2 -...

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With tailored sourcing: CSL R * = (200 – 90)/(200 – 80) = 0.92, O R * =NORMINV(110/120,10000,1000) = 11,383 Expected profits =(200-80)*10000*NORMDIST((11383-10000)/1000,0,1,1) -(200-80)*1000*NORMDIST((11383-10000)/1000,0,1,0) -11383*(90-80)*NORMDIST(11383,10000,1000,1) +11383*(200-90)*(1-NORMDIST(10967,10000,1000,1)) = \$1,186,080 CSL X * = (220 – 120)/(220 – 80) = 0.71, O X * =NORMINV(100/140,1000,700) = 1,396 Expected profits =(220-80)*1000*NORMDIST((1396-1000)/700,0,1,1) -(220-80)*700*NORMDIST((1396-1000)/700,0,1,0) -1396*(120-80)*NORMDIST(1396,1000,700,1)
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Unformatted text preview: +1396*(220-120)*(1-NORMDIST(1396,1000,700,1)) = \$66,689 Total expected profits: \$1,186,079.67+ 3*\$66,689.26 ≈ \$1,386,147 Because of an increase in expected profits, I can recommend tailored sourcing for Snoblo. Tailored sourcing will cause production of the Reguplo model to increase by 11,383 – 10,967 = 416 or almost 4%, and it will cause production of each of the other models to decrease by 1,554 – 1,396 = 158 or over 10%. The increase in expected profits is \$1,386,147 – \$1,214,280 = \$171,867 or over 14%....
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