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. Compute the probability of stock-out for the order quantities suggested by members of management team. Compute the projected profit for the order quantities suggested by management team under three scenarios: Worst case in which sales =10000 units, most likely case in which sales =20000 units and best case in which sales =30000 units. One of Specialty’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 should be order under this policy, and what is the projected profit under the three sales scenarios. Provide your own recommendation for an order quantity and note the associated profit projections. Provide the rationale for your recommendation
Specialty Toys, Inc. sells a variety of new and innovate children’s toys. Management learns that the pre-holiday 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 market potential, it chooses an October market entry date.
In order to get toys in its stores by Oct, Specialty places one-time orders with its manufactures 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 market place 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 the 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 build-in barometer selects one of five responses that predict the weather conditions. The responses
Managerial Report:
Prepare a managerial report that addresses the following issues and recommends an order quantity for the Weather Teddy product.
- 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. - Compute the probability of stock-out for the order quantities suggested by members of management team.
- Compute the projected profit for the order quantities suggested by management team under three scenarios: Worst case in which sales =10000 units, most likely case in which sales =20000 units and best case in which sales =30000 units.
- One of Specialty’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 should be order under this policy, and what is the projected profit under the three sales scenarios.
- Provide your own recommendation for an order quantity and note the associated profit projections. Provide the rationale for your recommendation
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