*Please show Calculations and record answers

Following information is available for a new line of designer shoes.

Targeted Delivery Date (weeks) =4

Suggested Selling Price per pair (based on research) =2500

Production cost per pair =600

Expected Demand for shoes =100000

Standard Deviation (normal distribution) =75000

Scenario A: Unsold shoes are never discounted to preserve premium image.

Q1: What is the Optimum Order Quantity for these designer shoes?

Q2: What is the probability of Stockout?

Q3: How would the Optimum Order Quantity change if targeted delivery is relaxed to 8 weeks?

Scenario B:Activist/consumer pressure to improve sustainability/ethical sourcing.

Potentially doubles Production costs and reduces margin for error!

To mitigate, the brand is now considering unloading unsold shoes at a discount.

Q4: Determine price on Overstock.com to maintain same margins as Scenario A?

Q5: What is the new Optimum Order Quantity?

Scenario C: Goodwill cost/penalty of $450 attributed to lost customers in the event of a stockout

Assuming other assumpsions (i.e. production costs & price on overstock.com) are same as Scenario B,

Q6: What is now the probability of stockout?

Q7: What is the new Optimum Order Quantity?

Q8: Describe briefly how to make sense of the results across the 3 scenarios.

Q9: Discuss the potential value/limitations of using your inventory model in luxury/designer fashion industry.