A Stochastic demand CVP model with return on investment criterion*

Abstract

Abstract. The stochastic demand cost-volume-profit (CVP) modei has recently received coBsiderable attention. For this model, management must determine optimal production prior tc knowing the actual demand, a stochastic variable with known distribution. Managemeot must choose the production quantity to balance prospects for sales revenue against risks of losses from shortages and from unsold items. This paper develops an expected retam on investment criterion model for determining the optimal production quantity. Formulas and solution methods applicable to general demand distributions are obtained. A special solution technique for normally distributed demand is presented. The resulting choice criterion offers the advantages inherent in return rate methods. !n addition, compared to a profit maximization approach, the expected rate of return on investment criterion is more widely applicable.Resume. Le modele de demande stochastique cout-volume-profit (CVP). a recemment regu considerablement d'atteotion. Avec ce modele, la gestion doit determiner la production optimale avant de connaitre la demande actuelle. une variable stochastique ayant une distribution connue. La gestion doit choisir la quantite a produire afin d'equilibrer les perspectives de ventes et !es risques de pertes resultant des penuries et des unites non vendues., Cet article developpe un modele base sur le rendement espere du capital investi pour determifler la quantite optimale a produire. On obtient des formules et des methodes pouvant s'appliquer k des distributions de demande generale. Une technique de solution particuliere pour une demande distribuee selon une loi normale est presentee. Ce modele offre ies avantages inherents aux methodes du taux de rendement. De plus, comparativement a i'approche de la maximisation du profit, !e critere du taux de rendement espere du capital investi, est applicable dans beaucoup plus de situations.

Robust newsvendor problem with autoregressive demand

“…In most paper the expected revenue is maximized. However, depending on the decision maker's preferences, it may be reasonable (if not necessary) to use other criteria, such as optimizing the probability of achieving a target profit, see for example Kabak and Schiff (1978) or Lau (1980), the Return of Investment (Thakkar et al (1983)), the Cost-VolumeProfit, the CVaR (Chen et al (2009)) or other risk-averse policies (Eeckhoudt et al (1995); Choi et al (2011)). …”

Optimal Ordering and Disposing Policies in the Presence of an Overconfident Retailer: A Stackelberg Game

“…For example, Whitin [13] develops the newsvendor model where the demand is price dependent and follows a uniform distribution; moreover, he finds the optimal order which depends on the price variance under the objective of maximizing the expected profit. Thakkar et al [14] investigated the optimal ordering quantity under the objective of maximizing the expected investment return and found wider application compared with the expected maximum. Khouja [15] classified the newsvendor problem into 11 categories, made a literature review on the predecessors' research, and provided recommendations for future research.…”