A t-shirt company is planning a production run for an event where the attendance (and thus demand for t-shirts) is uncertain. The event planners have indicated that they think the attendance will be 500, 750 or 1000, with probabilities of 30%, 50% and
20% respectively. The company must pre-order the blank t-shirts (cost=$5 per shirt) and it can sell finished shirts for $12 apiece. Any finished shirts that cannot be sold at the event can be sold for $2 apiece to a used clothing vendor. What Excel function is useful for calculating the expected value of demand for t-shirts? What is the expected demand?
The SUMPRODUCT function is useful for multiplying the respective probabilities times the demand outcomes and summing the products. The expected value is 725.
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