Frame It sells photo frames, which are packaged in specially designed boxes. The company sells four designs namely; engagement, wedding, anniversaries, and birthdays, and currently all packaging is designed and made in the plant as the frames are manufactured. As the frames are manufacturing they are packaged. The demand forecast for each of the four boxes is normally distributed, with a mean of 26,000 and a standard deviation of 9,000. Each box costs €4 and is sold for €6. Any unsold boxes at the end of the year are discounted €3, and they all sell out at this price. The cost of holding a box in inventory for the entire year before selling it at a discount is €0.50.
a. How many boxes of each design should Frame It manufacture?
b. What is the expected profit from this policy?
c. How many boxes does Frame It expect to sell at a discount?
d. An option being considered by Frame It is to separate frame manufacture from packaging. Frames will be manufactured in advance, but packaging will be done on an express line as orders come in. The express line and separation of steps adds €1 to the cost of production. How many frames should Frame It manufacture if it decides to postpone packaging? What is the expected profit? How many boxes will Frame It sell at a discount if it uses postponement?
e. At what additional cost of postponement (instead of the current €1) would Frame It be indifferent between operating with and without postponement?