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A fashion store is planning to order a particular fancy bag to sell in this coming new season. Assume that these bags will become obsolete
A fashion store is planning to order a particular fancy bag to sell in this coming new season. Assume that these bags will become obsolete at the end of the season. The retail price of the bag is $590. At the end of the season, there is a holding cost of $35 for each bag in stock. Wholesale cost to purchase this fashion bag is $350 each. (Assume that the order can only be made at the beginning of the season). a) If demand is discrete uniform from 10 to 15 bags (i.e., probability equals 1/6 for 10,11,..,15) for this coming season. If the store owner orders 12 bags, what are the expected overstock cost and the expected understock cost? b) What is optimal number of bags to order to minimize the expected total cost? (In this case, if the answer is not integer, please compare expected total cost for the rounding up and rounding down choices to compare which one is the most suitable) c) Assume that the demand can be approximated by a normal random variable with mean=750 and SD=125. What is optimal number to order to minimize the expected total cost? (In this case, you can use >= 0.5 rules to round up)
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