Question
Vela Boutique is an Instagram fashion label. Vela, who are currently operating with a 50% per unit profit margin, needs to order their best-selling dress
Vela Boutique is an Instagram fashion label. Vela, who are currently operating with a 50% per unit profit margin, needs to order their best-selling dress for the next upcoming selling season. As this next order by Vela will be from a new supplier with higher quality, they are facing an increasing per unit cost of 20%. In addition, traditionally at Vela any unsold dress are typically sold to other brand at 10% of the per unit cost. However, with a popular fashion weekend market coming up, Vela feels that they can utilize this upcoming event to increase their salvage value, and thus they estimate that the salvage value for this selling season will increase to 15% of the per unit cost. However, with high level of demand fluctuation and uncertainty that is typical among the Instagram fashion industry, you are to advice Vela Boutique on whether they should increase or decrease the target service level for the upcoming selling season, and by how much?
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