Case Problem: Specialty Toys

You are an inventory specialist for Specialty Toys, Inc. The company sells a variety of new and innovative children's toys. You know that the preholiday season is the best time to introduce a new toy because many families use this time to look for new ideas for December holiday gifts. When the company discovers a new toy with good market potential, it chooses an October market-entry date.

For you to get toys in your stores by October, you place one-time orders with manufacturers in June or July of each year. You are aware that demand for children's toys can be highly volatile. If a new toy catches on, a sense of shortage in the marketplace often increases the demand to high levels and large profits can be realized. However, new toys can also flop, leaving the company stuck with high levels of inventory that must be sold at reduced prices.

The most important question you face is deciding how many units of a new toy should be purchased to meet anticipated sales demand. If you order too few, sales will be lost; if you order too many, profits will be reduced because of low prices offered in clearance sales.

For the coming season, the company plans to introduce a new product called Weather Teddy. This variation of a talking teddy bear will make weather predictions using an internal barometer when its hand is pressed. Tests show the toy's weather predictions are quite good as compared to local television forecasters.

The sales department has given you the following sales forecast information:

What is the probability of running out of stock if you order 15,000 Weather Teddys from the manufacturer?

a. 0.1635

b. 0.8871

c. 0.1129

d. 0.8365