Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

I am having problems with letter c, I already have the first two answers. Fashionables is a franchisee of The Limited, the well-known retailer of

I am having problems with letter c, I already have the first two answers.

Fashionables is a franchisee of The Limited, the well-known retailer of fashionable clothing. Prior to the winter season, The Limited offers Fashionables the choice of five different colors of a particular sweater design. The sweaters are knit overseas by hand, and because of the lead times involved, Fashionables will need to order its assortment in advance of the selling season. As per the contracting terms offered by The Limited, Fashionables also will not be able to cancel, modify, or reorder sweaters during the selling season. Demand for each color during the season is normally distributed with a mean of 720 and a standard deviation of 300. Further, you may assume that the demands for each sweater are independent of those for a different color.

The Limited offers the sweaters to Fashionables at the wholesale price of $40 per sweater and Fashionables plans to sell each sweater at the retail price of $70 per unit. The Limited delivers orders placed by Fashionables in truckloads at a cost of $2,000 per truckload. The transportation cost of $2,000 is borne by Fashionables. Assume unless otherwise specified that all the sweaters ordered by Fashionables will fit into one truckload. Also assume that all other associated costs, such as unpacking and handling, are negligible.

The Limited does not accept any returns of unsold inventory. However, Fashionables can sell all of the unsold sweaters at the end of the season at the fire-sale price of $20 each.

a. How many units of each sweater type should Fashionables order to maximize its expected profit?(Round your answer to the nearest whole number.)

798

b. If Fashionables wishes to ensure a 97.5 percent in-stock probability, what should its order quantity be for each type of sweater?(Round your answer to the nearest whole number.)

1308

For parts c and d, assume Fashionables orders 920 of each sweater.

c. What is Fashionables' expected profit?(Round your answer to one decimal place.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Econometrics

Authors: R Carter Hill, William E Griffiths, Guay C Lim

5th Edition

1118452275, 9781118452271

Students also viewed these Economics questions