Sales Budget

Hawaiian Style supplies island-inspired clothing to hotel gift shops, golf shops, and specialty boutiques throughout the Hawaiian islands. The clothing distributor purchases its inventory from a Chinese clothing manufacturer that uses the latest designs provided by Hawaiian Style.

Due to manufacturing lead times, Hawaiian Style must provide the final designs no later than 90 days before it receives the completed clothing. Due to the costs of retooling and the risks associated with consumers changing tastes for clothing styles and colors, the Chinese clothing manufacturer requires Hawaiian Style to order its clothing in large batches, effectively resulting in Hawaiian Style ordering its entire annual inventory at the beginning of each year.

Hawaiian Style attempts to balance its concerns about stockouts of popular styles with its concerns about excess inventory from season to season by carefully budgeting its purchases for the next fashion year. Based on its analysis, Hawaiian Style has developed the following probabilities for sales for the coming year:

Sales Level	Probability
$1,800,000	20%
2,160,000	30%
2,640,000	30%
3,000,000	15%
3,120,000	5%

What amount should Hawaiian Style budget for sales for the coming year?

$Answer

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