Business, 18.04.2020 03:08 20shearcorr

Sunbucks, a global coffee shop, requires ordering the number of holiday-edition insulated coffee mugs in December. As every mug will be printed a date on the surface, those mugs that are unsold by the end of January will be considered as a loss. The selling price of each premium mug is $23.95, whereas the unit cost is $6.75. Sunbucks is unsure of the demand. The manager believes that there is a 25% probability that 10,000 mugs would be sold, a 50% probability for 15,000 mugs, and a 25% probability for 20,000 mugs. He decides to order 12,000, 15,000 or 18,000 mugs (select only one of them). If the demand is larger than the order quantity, then it is not allowed to sell more mugs that the quantity that he orders. Otherwise, the amount sold is the demand.
(i) Calculate net profits for various combinations of ordered quantities and demands.
(ii) Construct a decision tree with the net profits on the tree.

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