Question

specialty toys, Inc. sells a variety of new and innovativ 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 with good market potiential, it chooses an October, market entry date.

In order to get toys in stores by October, Specialty places one-time orders with its; manufacturers in June or July of eacjh year. Demand for chldren’s toys can be highly volitile. 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 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 to few are purchasedd, 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 response range from “ It looks to be a very nice day! Have fun” to “ I think it might 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 supprisingly good. Several of Specialty’s managers claim Teddy gave predictions of the weather that were good as many local television weather forcasters.

As with other products, Specialty faces the decision of how many Weather Teddy units to order for the coming hiliday season. Members of the management team suggested order quanities of 15,000, 18,000, 24,000, or 28,000 units, The wide range of order quanities suggested indicates considerable disagreement concerning the market potential. The product management team asks you for an analysis of the stock -out probabilitirs for vaious order quanities, for an estimate of the profit potential , and for help with making an order quanitity recommendation.

Answer 1