Specialty Toys Specialty Toys, Inc. sells a variety of new and innovative children's toys. Management learned that the preholiday season is the best time to introduce a new toy, because many families use this time to look for new ideas for December holiday gifts. When Specialty discovers a new toy with good market potential, it chooses an October market entry date. In order to get toys into its stores by October, Specialty places one-time orders with its manufacturers in June or July of each year. Demand for children's toys can be highly volatile. If a new toy catches on, a sense of shortage in the marketplace often increases the demand to high levels and large profits can be realized. However, new toys can also flop, leaving Specialty stuck with high levels of inventory that must be sold at reduced prices. The most important question the company faces is deciding how many units of a new toy should be purchased to meet anticipated sales demand. If too few are purchased, sales will be lost; if too many are purchased, profits will be reduced because of low prices realized in clearance sales. For the coming season, Specialty plans to introduce a new product called Weather Teddy. This variation of a talking teddy bear is made by a company in Taiwan. When a child presses Teddy's hand, the bear begins to talk. A built-in barometer selects one of five responses that predict the weather conditions. The responses range from "It looks to be a very nice day! Have fun to I think it may rain today. Don't forget your umbrella." Tests with the product show that, even though it is not a perfect weather predictor, its predictions are surprisingly good. Several of Specialty's managers claimed Teddy gave predictions of the weather that were as good as those of many local television weather forecasters. As with other products, Specialty faces the decision of how many Weather Teddy units to order for the coming holiday season. Members of the management team sug- gested order quantities of 15,000, 18,000, 24,000, or 28,000 units. The wide range of order quantities suggested indicates considerable disagreement concerning the market potential. The product management team asks you for an analysis of the stock-out proba- bilities for various order quantities, an estimate of the profit potential, and help with mak- ing an order quantity recommendation. Specialty expects to sell Weather Teddy for $24 based on a cost of $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 95 probability that demand would be between 10,000 units and 30,000 units. Unit 4 AS: Chapter 6 Case problem 1: Specialty Toys AS Description: The purpose of this assignment is to know how to apply normal probability distribution concepts to a real business case. AS Instructions: 1. Read the case of specialty toys at the end of Chapter 6 in its entirety 2. Describe a normal probability distribution that can be used to approximate the demand distribution, Sketch the distribution and show its mean and standard deviation 3. Compute the probability of a stock-out for the order quantities suggested by members of management team. 4. Compute the projected profit for the order quantkles suggested by the management tram under three scenarios: worst case in which sales = 10,000 units, most likely case in which sales - 20,000 units, and best case in which sales - 30,000 units 5. The order quantity should have a 70% chance of meeting demand and only a 30% chance of stock outs. What quantity would be ordered under this policy, and what is the projected profit under the three sales scenarios? 1. Unit 4 AS. Chapter 6 Case problem 1: Specialty Toys a. All questions in AS1 need to be solved manually (showing formulas/steps). b. Any work done in excel sheet needs to be copied and pasted on the word document, c. Only word document needs to be submitted for this assignment d. Make sure to have the questions first and then the answers. Provide supporting tables wherever needed. e. Hints for this assignment: 1. 02 - You have been given the mean and x. Use 2 1.96. Now, calculate the standard deviation using the z formula. Don't forget to draw the normal distribution showing the mean etc. il. Q3 - You have to calculate the probability of stock outs for 15,000, 18,000, 24,000 and 28,000. This is nothing but calculating the P(x > 15,000). P(x >18,000) etc. Follow the steps we went over in the live session today to calculate the probabilities. ul. 04 - Calculate the profit projections by filling out the following table for each of the order quantities 15,000, 18,000, 24,000 and 28,000 separately Total Cost Sales at $24 Sales at $5 Profit Unit Sales 10.000 20,000 30,000 iv. 05 - This is like the Grear problem we did in the live session today - What should be the guaranteed mileage if Grear wants no more than 10% of tires to be eligible for the discount guarantee? Find the value by seeing where the probability is closest to 70 and then using that z value calculate the x, given mean and standard deviation Once you find x new x Total Cost Sales at $24 Sales at $5 Profit Unit Sales 10.000 20,000 30.000 Specialty Toys Specialty Toys, Inc. sells a variety of new and innovative children's toys. Management learned that the preholiday season is the best time to introduce a new toy, because many families use this time to look for new ideas for December holiday gifts. When Specialty discovers a new toy with good market potential, it chooses an October market entry date. In order to get toys into its stores by October, Specialty places one-time orders with its manufacturers in June or July of each year. Demand for children's toys can be highly volatile. If a new toy catches on, a sense of shortage in the marketplace often increases the demand to high levels and large profits can be realized. However, new toys can also flop, leaving Specialty stuck with high levels of inventory that must be sold at reduced prices. The most important question the company faces is deciding how many units of a new toy should be purchased to meet anticipated sales demand. If too few are purchased, sales will be lost; if too many are purchased, profits will be reduced because of low prices realized in clearance sales. For the coming season, Specialty plans to introduce a new product called Weather Teddy. This variation of a talking teddy bear is made by a company in Taiwan. When a child presses Teddy's hand, the bear begins to talk. A built-in barometer selects one of five responses that predict the weather conditions. The responses range from "It looks to be a very nice day! Have fun to I think it may rain today. Don't forget your umbrella." Tests with the product show that, even though it is not a perfect weather predictor, its predictions are surprisingly good. Several of Specialty's managers claimed Teddy gave predictions of the weather that were as good as those of many local television weather forecasters. As with other products, Specialty faces the decision of how many Weather Teddy units to order for the coming holiday season. Members of the management team sug- gested order quantities of 15,000, 18,000, 24,000, or 28,000 units. The wide range of order quantities suggested indicates considerable disagreement concerning the market potential. The product management team asks you for an analysis of the stock-out proba- bilities for various order quantities, an estimate of the profit potential, and help with mak- ing an order quantity recommendation. Specialty expects to sell Weather Teddy for $24 based on a cost of $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 95 probability that demand would be between 10,000 units and 30,000 units. Unit 4 AS: Chapter 6 Case problem 1: Specialty Toys AS Description: The purpose of this assignment is to know how to apply normal probability distribution concepts to a real business case. AS Instructions: 1. Read the case of specialty toys at the end of Chapter 6 in its entirety 2. Describe a normal probability distribution that can be used to approximate the demand distribution, Sketch the distribution and show its mean and standard deviation 3. Compute the probability of a stock-out for the order quantities suggested by members of management team. 4. Compute the projected profit for the order quantkles suggested by the management tram under three scenarios: worst case in which sales = 10,000 units, most likely case in which sales - 20,000 units, and best case in which sales - 30,000 units 5. The order quantity should have a 70% chance of meeting demand and only a 30% chance of stock outs. What quantity would be ordered under this policy, and what is the projected profit under the three sales scenarios? 1. Unit 4 AS. Chapter 6 Case problem 1: Specialty Toys a. All questions in AS1 need to be solved manually (showing formulas/steps). b. Any work done in excel sheet needs to be copied and pasted on the word document, c. Only word document needs to be submitted for this assignment d. Make sure to have the questions first and then the answers. Provide supporting tables wherever needed. e. Hints for this assignment: 1. 02 - You have been given the mean and x. Use 2 1.96. Now, calculate the standard deviation using the z formula. Don't forget to draw the normal distribution showing the mean etc. il. Q3 - You have to calculate the probability of stock outs for 15,000, 18,000, 24,000 and 28,000. This is nothing but calculating the P(x > 15,000). P(x >18,000) etc. Follow the steps we went over in the live session today to calculate the probabilities. ul. 04 - Calculate the profit projections by filling out the following table for each of the order quantities 15,000, 18,000, 24,000 and 28,000 separately Total Cost Sales at $24 Sales at $5 Profit Unit Sales 10.000 20,000 30,000 iv. 05 - This is like the Grear problem we did in the live session today - What should be the guaranteed mileage if Grear wants no more than 10% of tires to be eligible for the discount guarantee? Find the value by seeing where the probability is closest to 70 and then using that z value calculate the x, given mean and standard deviation Once you find x new x Total Cost Sales at $24 Sales at $5 Profit Unit Sales 10.000 20,000 30.000