Question
Specialty Toys faces the decision of how many teddy bear units to order for the coming holiday season. Members of the management team recommended order
Specialty Toys faces the decision of how many teddy bear units to order for the coming holiday season. Members of the management team recommended order quantities of 15,000, 18,000, 24,000, and 28,000. The product management team has asked you for an analysis of the stock-out probabilities for various order quantities, an estimate of the profit potential, and help in making order quantity recommendation. Specialty expects to sell teddy bears for $24, and the cost is $16 per unit. If inventory remains after the holiday season, Specialty will sell all surplus inventory for $5 per unit. After reviewing the sales history of similar products, Specialty's senior sales forecaster predicted an expected demand of 20,000 units with a 0.95 probability that demand would be between 10,000 units and 30,000 units. Compute the projected profit for the order quantities suggested by the management team under three scenarios. Worse case: sales= 10,000 units; most likely case: sales= 20,000 units; and best case: sales= 30,000 units.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started