Question

As with other products, Einstein faces the decision of how many GiggleBloxx units to order for the coming holiday season. Members of the management team suggested order quantities of 25,000, 36,000, 48,000, or 65,000 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 probabilities for various order quantities, an estimate of the profit potential, and help with making an order quantity recommendation. Einstein expects to sell GiggleBloxx for $14 based on a cost of $5 per unit. If inventory remains after the holiday season, Einstein will sell all surplus inventory for $3 per unit. After reviewing the sales history of similar products, Einstein’s senior sales forecaster predicted an expected demand of 50,000 units with a .95 probability that demand would be between 30,000 units and 70,000 units. I am doing this in excel but having trouble figuring out set up for formulas.

1. Use the sales forecaster’ s prediction to describe a normal probability distribution that can be used to approximate the demand distribution. Sketch the distribution and show its mean and standard deviation.

2. Compute the probability of a stock-out for the order quantities suggested by members of the management team.

3. Compute the projected profit for the order quantities suggested by the management team under three scenarios: worst case in which sales = 30,000 units, most likely case in which sales = 50,000 units, and best case in which sales = 70,000 units.

Answer 1