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1)You are a procurement manager at a Floral Boutique and are planning for next week's selling season for a rare species of orchid flowers. You pay $200 per item from your supplier. As is typical of procurement, you can only forecast demand when ordering. Your marketing team forecasts that demand is normally distributed with a mean of 2,000 units and standard deviation of 500 units. Each unit sells for $500. Unfortunately, unsold units are worthless (i.e., the units are worth $0 at the end of a selling cycle).

a)What order quantity, Q, maximizes expected profit?

Q =

b)Imagine that your costs of procuring the product are $250 and unsold units are worthless and cannot be sold. What's your order quantity now? Is it higher or lower than (a)?Why?

c)Imagine that your costs of procuring the product are $300 and unsold units are worthless and cannot be sold. What's your order quantity now? Is it higher or lower than (a)?Why?

d)If you had historical data that indicated an A/F ratio of 1.25 for the mean and a standard deviation of the A/F ratios of 0.5, what can youcommentabout the overall accuracy of marketing team's demand forecast from last season?

e)What would be your new estimates of the expected actual demand () and standard deviation of actual demand ()?Hint: Assume theinitialforecast remains at 2000 units.

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f)What is the adjusted order quantity or Q?