Accounting

Homework 4

 

1. Bower is an outdoor clothing accessories chain that produces a line of hats for $10 from its Asian supplier, BowerSports. Unfortunately at the time of order placement, demand is uncertain. Bower forecasts that its demand is normally distributed with a mean of 2,100 and standard deviation of 1,200. The hats are sold for $22. Unsold hats have little salvage value: Bower simply donates them to charity.
2. What order quantity, Q, maximizes Bower’s expected profit?

 

For the remaining questions assume the order quantity Q = 3,000 (Not what you calculated in part a)

1. What are the expected lost sales?

 

1. What are the expected sales?

 

1. What is the expected left over inventory?

 

1. What is its expected profit?

 

1. What is the expected fill rate

 

1. What is its stock-out probability?

 

2. Dan McClure’s bookstore must decide how many copies of a book, Power and Self-Destruction, to order. The book’s retail price is $20 and the wholesale price is $12. The salvage value is $8. Dan believes the demand can be represented by a normal distribution with a mean of 200 and a standard deviation of 80.
3. Dan prides himself on good customer service. His motto is “Dan has what you want to read”. Using the NV model, what quantity should he order for a 95 percent expected fill rate?

 

1. How many books should Dan order if instead he wants to achieve a 95 percent in-stock probability?

 

1. Dan decides to develop his own forecast of book sales. He collected data on recent books he felt matched the characteristics of Power and Self-Destruction. Using these data to construct an empirical distribution function, what would be the optimal order quantity, Q? (Assume Dan’s initial forecast is 200 books.)

Book	Actual Demand	Forecast	A/F Ratio		Book	Actual Demand	Forecast	A/F Ratio
1	27	100	0.27		9	88	100	0.88
2	209	170	1.23		10	57	70	0.81
3	83	160	0.52		11	188	140	1.34
4	77	100	0.77		12	157	130	1.21
5	205	150	1.37		13	65	110	0.59
6	228	190	1.20		14	135	170	0.79
7	12	60	0.20		15	155	160	0.97
8	88	60	1.47		16	82	90	0.91

 

This data is also available for download as an Excel spreadsheet.

 

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