As with other products, Fisher-Price faces the decision of how many Weather Teddy units to order for the coming holiday season. Members of the management team suggested order quantities of 15,000, 18,000, 24,000, or 28,000 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 to help make an order quantity recommendation. Fisher-Price expects to sell Weather Teddy for $24 based on a cost of $16 per unit. If inventory remains after the holiday season, Fisher-Price will sell all surplus inventory for $5 per unit. After reviewing the sales history of similar products, Fisher-Price’s senior sales forecaster predicted an expected demand of 20,000 units with a .95 probability that demand would be between 10,000 units and 30,000 units. Question: One of Fisher-Price’s managers felt that the profit potential was so great that the order quantity should have a 70% chance of meeting demand and only a 30% chance of any stock-outs. What quantity would be ordered under this policy, and what is the projected profit under the three sales scenarios?
As with other products, Fisher-Price faces the decision of how many Weather Teddy units to order for the coming
holiday season. Members of the management team suggested order quantities of 15,000, 18,000, 24,000, or
28,000 units. The wide range of order quantities suggested indicates considerable disagreement concerning the
market potential. The
various order quantities, an estimate of the profit potential, and to help make an order quantity recommendation.
Fisher-Price expects to sell Weather Teddy for $24 based on a cost of $16 per unit. If inventory remains after
the holiday season, Fisher-Price will sell all surplus inventory for $5 per unit. After reviewing the sales history
of similar products, Fisher-Price’s senior sales
.95 probability that demand would be between 10,000 units and 30,000 units.
Question:
One of Fisher-Price’s managers felt that the profit potential was so great that the order quantity should have
a 70% chance of meeting demand and only a 30% chance of any stock-outs.
What quantity would be ordered under this policy, and what is the projected profit under the three sales scenarios?
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