Question Must Be Answered In Excel: The Steak And Chop Butch

Question Must Be Answered In Excelthe Steak And Chop Butcher Shop Pur

Question must be answered in Excel: The Steak and Chop Butcher Shop purchases steak from a local meatpacking house. The meat is purchased on Monday at $2.00 per pound, and the shop sells the steak for $3.00 per pound. Any steak left over at the end of the week is sold to a local zoo for $0.50 per pound. The possible demands for steak and the probability of each are shown in the following table: Demand (lb.) Probability 20 0..... The shop must decide how much steak to order in a week. Construct a payoff table for this decision situation and determine the amount of steak that should be ordered, using expected value.

Paper For Above instruction

Decision Analysis for Steak and Chop Butcher Shop

The Steak and Chop Butcher Shop faces a classic inventory management decision: determining the optimal weekly order quantity of steak to maximize expected profit given uncertain demand and probabilistic outcomes. This problem involves analyzing different demand levels, their associated probabilities, and the respective payoffs for various order quantities. Using a payoff table and expected value calculations, the shop can decide the most profitable ordering strategy.

Introduction

Inventory decisions in retail food businesses, such as butcher shops, are crucial for financial success. Orders placed too high may result in leftover stock sold at a discount or donated, whereas orders that are too low risk stockouts and lost sales. To optimize profit, managers must consider demand variability, costs, and potential revenues. This case examines the decision-making process for the Steak and Chop Butcher Shop, which sources its meat wholesale, sells at retail prices, and disposes of excess inventory at a lower price.

Data and Assumptions

• Cost per pound of steak: $2.00
• Selling price per pound: $3.00
• Salvage (resale) price for leftover steak: $0.50 per pound
• Demand levels: Provided in the table (full data needed for exact calculations)
• Probability of each demand level: Provided in the table

For demonstration purposes, assume demand levels at different quantities such as 10, 20, 30 pounds, with associated probabilities (e.g., demand of 20 pounds with probability 0.4). In practice, these should be entered correspondingly as per the actual data.

Step 1: Constructing the Payoff Table

The payoff table calculates the profit for each combination of order quantity and demand level. The profit depends on whether the actual demand exceeds, matches, or is less than the ordered quantity. The following principles apply:

• If demand is greater than or equal to order quantity: Profit = (Order quantity × Selling price) - (Order quantity × Cost) = (Order quantity) × (Sale price - Cost)
• If demand is less than order quantity: Profit = (Demand × Sale price) + (Leftover × Salvage price) - (Order quantity × Cost)

Step 2: Calculating Expected Values

For each possible order quantity, calculate the expected profit by summing the products of each payoff and the probability of its demand level:

Expected Value = Σ (Profit at a demand level × Probability of that demand)

Applying the Analysis in Excel

1. Create a table with columns for demand levels, their probabilities, and the payoffs for each order quantity.

2. Fill in the payoff cells based on demand and order quantity calculations.

3. Calculate the expected value for each order quantity using the SUMPRODUCT function.

4. Select the order quantity with the highest expected value as the optimal decision.

Conclusion

Using the above approach, the butcher shop can quantify the expected profit for various order quantities and select the one that maximizes expected value. This analytical method helps rationalize inventory decisions, minimizes losses from overstocking or stockouts, and improves profitability in an uncertain demand environment.

References

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