BMAN10732

2010- 11

Quantitative Methods for Business and Management 2

ASSIGNMENT 1

Answer the question using Microsoft Excel and Word. Keep your writing to a minimum (bullet points will be acceptable) and use NO MORE than FOUR sides of A4. Use a minimum font size of Arial 10 point. Hand-written solutions will NOT be acceptable. You will be marked on your presentation (e.g. layout, font size, keeping to the page limit, spelling, grammar, use of tables and charts) and in particular your use of Excel. You MUST submit your answer to your seminar leader in person in week 8 and attach this cover sheet with your personal details completed. Failure to do so will result in a mark of zero unless you have exceptional mitigating circumstances (e.g. medical reasons). Printer failures or PC crashes will NOT be acceptable reasons for late or nil submissions. You MUST work on your own, any evidence of plagiarism will result in a mark of zero.

First name(s): Family name: Registration number: Seminar: Signature:

Group:

Day:

Time:

PTO Page 1 of 3

Duckworth Group
Duckworth Group is a distributor of food additives. One of its products, FastYeast, is manufactured overseas and then stored at special storage locations in the UK prior to delivery to the customer. The supply chain for FastYeast can be unreliable and storage capacity in the UK is limited. Consequently, Duckworth Groups sales department has been trying to use pricing as a way to control demand such that the companys storage capacity limits are not exceeded. Over the past two years, the monthly price and corresponding sales were observed to be: Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (a) Unit price ()
101 87 95 88 85 60 74 90 80 68 59 83 80 75 72 85 73 67 90 65 57 82 87 72

Sales (units)
231 282 265 411 382 472 351 274 326 444 497 313 361 408 377 346 424 394 316 465 446 335 355 465

Find a suitable model for monthly demand as a function of price. What assumptions have you made about the relationship between demand and price for FastYeast? How appropriate is your model? All calculations should be accurate to 3 decimal places. (40% of marks) Duckworth Groups Sales and Marketing Director believes that the company should change its approach. Rather than managing demand using price, he thinks that it should concentrate on maximising revenue. Write down an appropriate model for monthly revenue as a function of price. Using your model, predict the range of prices for which there is positive revenue. What is the maximum monthly revenue that can be achieved? Page 2 of 3

(b)

(10% of marks) (c) Duckworth Groups Finance Director is more concerned with profitability. The cost of each unit of FastYeast is 55 and the monthly cost of the storage facilities is 5100. Write down the cost function in terms of the quantity sold. Provide the Finance Director with a profit function for FastYeast in terms of quantity sold. Use this model to predict the range of quantities and prices at which FastYeast is profitable. What is the maximum monthly profit that can be achieved? (20% of marks) Duckworth Groups Managing Director wants to be provided with an executive summary of these models. Provide him with one, wellpresented chart that shows your models of revenue, costs and profits in terms of price. Use it to explain and confirm your previous findings. (30% of marks)

(d)

End of Assignment 1

Page 3 of 3