Buy Back Contracts

Goldsmith Inc. sells patio furniture to Home Depot. Goldsmith wholesale price for patio furniture is $185. Home Depot sales the furniture for $250. Goldsmith variable cost is $100. Suppose Home Depots summer forecast can be described with a Poisson distribution with mean 8.75. Patio furniture leftover at the end of the summer are sold at a 75 percent discount.

Q- Suppose Goldsmith were to accept unsold furniture at the end of the season. Home Depot would incur a $15 shipping cost per furniture returned to Goldsmith. Goldsmith can only resale 55 percent of the return pieces of furniture because of damages. The furniture can be resold at the original price of $185. Given the possibility of returning furniture to Goldsmith, how many should Home Depot order to maximize supply chain profit?