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In: Statistics and Probability

Specialty faces the decision of how many Weather Teddy units to order for the coming holiday...

Specialty faces the decision of how many Weather Teddy 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. Considerable disagreement concerning the market potential is evidenced by the different order quantities suggested. 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 an order quantity recommendation. Specialty expects to sell Weather Teddy 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.

3. Compute the projected profit for the order quantities suggested by the management team under three scenarios. Worst case: sales = 10,000 units; most likely case: sales = 20,000 units; and best case: sales = 30,000 units.

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orchestra answered 2 years ago
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