Exhibit 2013 336 sweaters were sold through elay for \\( \\$ 46 \\) each (the customer pays shipping on all orders). \"Calculated assuming the demand at each school is independent a \\( \\longdiv { \\sum _ { i = 1 } ^ { N } \\text { ? } } \\) Our monogramming subcontractor gets 514 for each sweater, Shipping cost is paid by the customer when the order is placed In addition to the cost data, you also have some demand information, as shown in Exhibit 2013. The exact sales numbers for last year are given: The exhibit indicates the retail of \"full price\" sales for the sweaters that were sold for \\( \\$ 127 \\) each. Sweaters that we had at the end of the season were sold through eley for \\( \\$ 46 \\) each and were not monogrammed. Keep in mind that the retal sa es numbers do not accurately refect actual demand since they stocked out of the OSU sweaters toward the end of the season As for advertising the sweaters for next season. Rhonda is committed to uling the same approach used last year. The firm placed ads in the footbali program sold of esch game. These worked very wes for reaching those attending the games, but she tealized there might be ways to advertise that would open sales to more alumil. She has hired a market research firm to help identify other. advertising outlets but has decided to walt at least another year to ty something different Forecastino demand is a mojor problem for the company. You hove asked Rhonda and Steve to predct what they think sales might be Based on advice from the market research firm, you have decided to use the aggregate demand forecast and standard deviation for the aggregate demand. The aggregatepemand was calculated by adding the average forecast for each item. The aggregate standard deviation was calculated by squaring the standard deviation for each irem (this is the variance), summing the variance for each item, and then taking the square root of this sum. This assumes that the demand for each school is independent, meaning that the demand for Ohio State is totally unfelated to the demand at Michigan and the other schools. You will allocate your aggregate order to the individual schools based on their expected percentage of total demand. You discussed your analysis with Rhorida and Steve and they are OK whth your analysis. They would like to see what the order quantities would be if each school was considered individually. You are curious as to how much Rhonda and Steve made in their business last year, You do not hove all the data, but you know that most of their expenses relate to buying the sweaters and having them monogrammed You know they paid themselves \\( \\$ 50,000 \\) each and you know the rent, utilities, insurance, and a benefit package for the business was about \\( \\$ 25,000 \\) They are paying you \\( \\$ 42,000 \\) and you expect your benefit package addition would be about \\( \\$ 1,000 \\) per year \\( A s s u m e \\) that they order based on the aggregate forecast. a. What is the expected pre-tax profit for this year, ofter deducting salary and overhead? Use average forecast for each school Assume sales materialize per the average forecasts and the entire safety stock amount (computed bosed on aggregate demand) must be sold on EBay. (Round your answer to the nearest dollar amount.) b. If they must pay \50 in taxes after deducting their venture capital firm payment, how much do you expect their business cash to increase this year? (Round your answer to the nearest dollar amount.) Eigiosweaters com is a new company started last year by two recent college graduates, The idea behind the company was simple. They wili sell premium logo sweaters for Big. Ten colleges with one major, unique feature. This unique feature is a special large monogram that has the customer's name, major, and year of graduation. The sweater is the perfect gift for graduating students and alumni, particularly avid football fans who want to show support during the football season. The company is off to a great start and had a successful first year while selling to only a few schools. This year they plan to expand to a few more schools and target the entire Big Ten Conference within three years. You have been hired by Bigiosweaters.com and need to make a good impression by making good supply chain decisions. This is your big opportunity with a startup. There are only two people in the firm and you were hired with the prospect of possibly becoming a principal in the future. You majored in supply chain (operations) management in school and had a great internship at a big retailer that was getting into Internet sales. The experience was great, but now you are on your own and have none of the great support that the big company had. You need to find and analyze your own data and make some big decisions. Of course, Rhonda and Steve, the partners who started the company, are knowledgeable about this venture and they are going to help along the way Rhonda had the idea to start the company two years ago and talked her friend from business school, Steve, into joining her. Rhonda is into web marketing, has a degree in computer science, and has been working on completing an online MBA She is as much an artist as a techie. She can really make the website sing Steve majored in accounting and likes to pump the numbers. He has done a great job of keeping the books and selling the company to some small venture capital people in the area. Last year, he was successful in getting them to invest \\( \\$ 2,000,000 \\) in the company (a onetime investment). There were some significant strings attached to this investment in that it stipuloted that only \\( \\$ 100.000 \\) per yeor could go toward paying the salary of the two principals. The rest had to be spent on the website, advertising. ond inventory. In addition, the venture capital company gets 22 percent of the company profits, before taxes, during the first four years of operation. assuming the company makes a profit. Your first job is to focus on the firm's inventory. The company is centered on selling the premium sweaters to college footbail fans through a website. Your analysis is important since a significant poction of the company's assets is the inventory that it carries. The business is cyclic, and sales are concentrated during the period leading up to the college football season, which runs between late August ond the end of each year. For the upcoming season, the firm wants to sell sweaters to only of fow of the largest schools in the Midwest region of the United States In particular, they are targeting The Ohio State University (OSU), the University of Michigan (UM). Michigan State University (MSU). Purdue Univers ty (PU), and indiano University (IU). These five schools have major footbali programs and a loyal tan bose The firm has considered the idea of making the sweaters in their own factory, but for now they purchose them from a supplier in China The firm has considered the ldea of making the sweateis in their own foctory, but for now they purchase them from a supplier in China. The prices are great, but service is a problem since the supplier has a 20 -week lead time for each order and the minimum order size is 5,000 sweaters. The order can consist of a mix of the different logos, such as 2,000 for OSU, 1,500 for UM, 750 for MSU, 500 for PU. and 250 for \\( 1 U \\). Within each logo sub lot, sizes are allocated based on percentages and the supplier suggests 20 percent \\( X \\)-large, 50 percent large, 20 percent medium, and 10 percent small based on their historical dara Once an order is recelved, a local subcontractor applies the monograms and ships the sweaters to the customer. They store the inventory of sweaters for the company in a small warehouse area located at the subcontractor This is the company's second year of operation. Last year they only sold sweaters for three of the schools, OSU. UM, and PU. They ordered the minimum 5,000 sweaters and Shid all of them, but the experience was painful since they hod too many UM sweaters and not enough for OSU fans Last year they ordered 2,300 OSU, 1,700 UM, and 1,000 PU sweaters. Of the 5.000 sweaters, 336 had to be sold at a steep discount on eBay after the season. They were hoping not to do this again. For the next year, you have collected some data relevant to the decision Exhibit 2012 shows cost information for the product when purchased from the supplier in China. Here we see that the cost for each sweater, dellvered to the warehouse of our monogramming subcontractor, is \\( \\$ 6478 \\). This poce is volid for ony quantity that we order above 5.000 sweaters. This order can be a mix of sweaters for each of the five schools we are targeting. The supplier needs 20 weeks to process the ordec, so the order needs to be placed around April 1 for the upcoming football season. Exhibit 20.12 Exhbit 2013