Prepare a managerial report that addresses the following issues and recommends an order quantity for the Weather Teddy product. . Compute the projected profit for the order quantities suggested by the management team under three scenarios: worst case in which sales = 10,000 units, most likely case in which sales = 20,000 units, and best case in which sales = 30,000 units.
Specialty Toys, Inc., sells a variety of new and innovative 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 toy with good market potential, it
chooses an October market entry date.
In order to get toys in its stores by October, Specialty places one-time orders with its
manufacturers in June or July of each year. Demand for children’s toys can be highly volatile. 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 also 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 too few are
purchased, 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 responses range from “It looks to be a very nice day! Have fun” to “I think it may 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 surprisingly good. Several of Specialty’s managers claimed Teddy
gave predictions of the weather that were as good as many local television weather forecasters.
As with other products, Specialty 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
the stock-out probabilities for various order quantities, an estimate of the profit potential, and to help
make an order quantity recommendation. Specialty expects to sell Weather Teddy for $24 based on a cost
of $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 .95 probability that demand would be between
10,000 units and 30,000 units.
Managerial Report
Prepare a managerial report that addresses the following issues and recommends an order quantity for the
Weather Teddy product.
. Compute the projected profit for the order quantities suggested by the management team
under three scenarios: worst case in which sales = 10,000 units, most likely case in which sales = 20,000
units, and best case in which sales = 30,000 units.
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