# Expansion Strategy and Establishing a Re-Order Point

Anonymous
account_balance_wallet \$20

Question description

Purpose of Assignment

This assignment has two cases. The first case is on expansion strategy. Managers constantly have to make decisions under uncertainty. This assignment gives students an opportunity to use the mean and standard deviation of probability distributions to make a decision on expansion strategy. The second case is on determining at which point a manager should re-order a printer so he or she doesn't run out-of-stock. The second case uses normal distribution. The first case demonstrates application of statistics in finance and the second case demonstrates application of statistics in operations management.

Assignment Steps

Resources: Microsoft Excel®, Bell Computer Company Forecasts data set, Case Study Scenarios (Please create a text box for each within Microsoft Excel to complete this objective)

Develop a summary in the text boxes based on the Bell Computer Company Forecasts data set and Case Study Scenarios.

Case 1: Bell Computer Company

• Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit?
• Compute the variation for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?

Case 2: Kyle Bits and Bytes

• What should be the re-order point? How many HP laser printers should he have in stock when he re-orders from the manufacturer?

Missfomen
School: Carnegie Mellon University

Attached.

Low
Demand Medium
High
Expected Profit (\$1000s)

Medium-Scale
Large-Scale
Expansion Profits
Expansion Profits
Annual
Annual
Profit
Profit
(\$1000s)
(\$1000s)
P(x)
P(x)
50
20%
0
20%
150
50%
100
50%
200
30%
300
30%
145

Case 1: Bell Computer Comp
The expected profit for the m
expansion, the expected valu
Since the expected value of p
large-scale project, it means t
probability of generating mor
The option for medium
expected profit.

140

Risk Analysis for Medium-Scale Expansion
Annual Profit
(x)
Probability
P(x)
(x - µ)2 (x - µ)2 * P(x)
Demand \$1000s
(x - µ)
Low
50
20%
-95
9025
1805
Medium
150
50%
5
25
12.5
High
200
30%
55
3025
907.5
2
σ =
2725
σ=
52.20
Risk Analysis for Large-Scale Expansion
Annual Profit
(x)
Probability
P(x)
(x - µ)2 (x - µ)2 * P(x)
Demand \$1000s
(x - µ)
Low
0
20%
-140
19600
3920
Medium
100
50%
-40
1600
800
High
300
30%
160
25600
7680
2
σ =
12400
σ=
111.36

From the computation of risk
variance of 2725 and ...

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