Sensitivity Analysis: Maximizing Profit for Easy Time
How can Easy Time determine its profit using Sensitivity Analysis?
Easy Time can determine its profit using Sensitivity Analysis by analyzing how changes in certain variables, such as the prices of baby food from different stores, affect the final profit outcome. By comparing the profit margins at various locations, Easy Time can make informed decisions to maximize profitability.
Using Sensitivity Analysis, what is profit?
The profit can be determined by using sensitivity analysis. Sensitivity analysis is a technique used to understand how changes in certain variables affect the outcome or result of a model. In this case, the variables could be the prices at which Easy Time purchases baby food from different stores.
To determine whether Easy Time should purchase all or none of its baby food from the New York City distributor, we need to compare the profit margins at different stores. The profit per case at each store is as follows:
- Store 1, 3, and 4: $9 per case
- Store 2 and 6: $8 per case
- Store 5: $7 per case
To make a decision, we need to consider the cost of purchasing from the distributor, the cost of trucking in from other stores, and the potential profit.
Let's say the cost per case from the distributor is $X. If the profit per case at store 1, 3, and 4 is $9, the total profit would be ($9 - $X) multiplied by the number of cases purchased from the distributor. Similarly, we can calculate the total profit for stores 2, 5, and 6.
By comparing the total profit for purchasing from the distributor versus purchasing from other stores, we can determine which option is more profitable. Easy Time should choose the option that maximizes its profit.
If Easy Time could arrange to purchase more baby food from one of the outlying locations, we need to determine which location would be the most beneficial in terms of increasing profit. To do this, we can compare the profit margins at the different locations.
It is important for Easy Time to carefully consider the costs, profit margins, and logistics associated with purchasing baby food from different stores and locations to make an informed decision that maximizes its profitability.