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Sam’s Bookstore, with many locations across the United States, places orders for all of the latest books and then distributes them to its individual bookstores. Sam’s needs a model to help it order the appropriate number of any title. For example, Sam’s plans to order a popular new hardback novel, which it will sell for $30. It can purchase any number of this book from the publisher, but due to quantity discounts, the unit cost for all books it orders depends on the number ordered. Specifically, if the number ordered is less than 1000, the unit cost is $24. After each 1000, the unit cost drops: to $23 for at least 1000 copies; to $22.25 for at least 2000; to $21.75 for at least 3000; and to $21.30 (the lowest possible unit cost) for at least 4000. For example, if Sam’s orders 2500 books, its total cost is $22.25(2500) = $55,625. Sam’s is very uncertain about the demand for this book—it estimates that demand could be anywhere from 500 to 4500. Also, as with most hardback novels, this one will eventually come out in paperback. Therefore, if Sam’s has any hardbacks left when the paperback comes out, it will put them on sale for $10, at which price it believes all leftovers will be sold. How many copies of this hardback novel should Sam’s order from the publisher? The spreadsheet model for Sam’s Bookstore contains a two-way data table for profit versus order quantity and demand. Experiment with Excel’s chart types to create a chart that shows this information graphically in an intuitive format. (Choose the format you would choose to give a presentation to your boss.)
Practical Management Science
Solutions
Practical Management Science
Sam’s Bookstore, with many locations across the United States, places orders for all of the latest books and then distributes them to its individual bookstores. Sam’s needs a model to help it order the appropriate number of any title. For example, Sam’s plans to order a popular new hardback novel, which it will sell for $30. It can purchase any number of this book from the publisher, but due to quantity discounts, the unit cost for all books it orders depends on the number ordered. Specifically, if the number ordered is less than 1000, the unit cost is $24. After each 1000, the unit cost drops: to $23 for at least 1000 copies; to $22.25 for at least 2000; to $21.75 for at least 3000; and to $21.30 (the lowest possible unit cost) for at least 4000. For example, if Sam’s orders 2500 books, its total cost is $22.25(2500) = $55,625. Sam’s is very uncertain about the demand for this book—it estimates that demand could be anywhere from 500 to 4500. Also, as with most hardback novels, this one will eventually come out in paperback. Therefore, if Sam’s has any hardbacks left when the paperback comes out, it will put them on sale for $10, at which price it believes all leftovers will be sold. How many copies of this hardback novel should Sam’s order from the publisher?
The spreadsheet model for Sam’s Bookstore contains a two-way data table for profit versus order quantity and demand. Experiment with Excel’s chart types to create a chart that shows this information graphically in an intuitive format. (Choose the format you would choose to give a presentation to your boss.)
To depict: A two-way data table for profit versus order quantity and demand.
Quantity discounts and demand under uncertainty:
Quantity discount is the discount given when the products are ordered in large quantities. A quantity discount is often given by a seller to induce the buyer to purchase large quantities.
Demand uncertainty is the situation when a business is unable to accurately predict the demand for a product or a business.
Explanation of Solution
Model:
Profit vs order quantity:
Formula:
Data table:
Cell A22 to J31 is selected and the input is given as below:
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