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expected profit per sale

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Fed up with the proliferation of poorly made U.S. vehicles on the market,
you decide you are only going to sell European small cars. Your car
dealership sells fi ve vehicles, the VW Golf, Saab 92X, BMW Z4 Roadster,
Skoda Octavia, and the Lada Niva.

After 12 months in business, you discover that only 10 percent of
people who walk through your doors will be buyers. Of those who buy
vehicles, the breakdown of vehicle purchases is as follows:
VW Golf 15%
Saab 92X 15%
BMW Z4 20%
Skoda Octavia 10%
Lada Niva 40%
4. If 400 people walk through the door in a month, what is your total
expected profi t?
5. Based on the fi gures, should you continue selling your favorite car, the
Lada Niva? Why or why not?

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Solution Preview

4. It is given that only 10% of those who walk through the door will be buyers. In addition, the respective percentages of those people who buy cars of each type are also given. For example, 15% of the 10% who buy cars, will buy VW Golf cars. So of people who walk through the percentage of people buy VW Golfs is:
= 0.15*0.10

So if 400 people walk through the door, 400*0.015 = 6 are expected to buy a VW Golf. The profit per sale of a VW Golf car is $1000. So ...

Solution Summary

This solution determines the expected profit per sale.