465 views

Uploaded by HàMềm

reference

- Case study - Business Schools of Asia Pacific
- Specialty Toys_weather Teddy
- Specialty Toys Problem.pdf
- Specialty Toys Case Study
- Homework Statistics
- Case Study #3 - Gulf Real Estate (Q 1-3)
- Speciality Toys
- 04 Case Ch06
- Cost & Management Accounting for MBA 13, Binder 2014
- Hamilton County Judges Case Study
- LP2.2_Andrea_Starkweather
- Pelican Stores Case Study
- 2010-06-24_043236_Specialty_Toys
- Motivation Plan LDR 531 Week 5
- Gulf View Case
- Case Study 2 Hamilton County Judges - Essays - Xxjonxx
- Failure Analysis Change Strategy
- Business Schools of Asia Pacific_G7
- Asia Pacific
- 05_SBE11E_CaseSol_Ch09

You are on page 1of 10

Ngo Thanh Ha

Khuong Thi Thuy Tien

Tran Bich Phuong

Dang Khanh Linh

Dam Thi Tuyet

National Economics University

IS310 - Quantitative Analysis

Executive Summary

Specialty Toys, Inc. is a manufacturer of new and innovative childrens toys which includes

the Weather Teddy. The Weather Teddy has a built-in barometer that provides one of five

standard responses about the weather when a child presses the teddy bears hand. The

company recently reached out to our team to prepare a managerial report addressing, but not

limited to, the following issues: normal probability distribution in relation to demand

approximation, the probability of stock-outs for certain quantities and the projected profits

associated with certain order quantities. The purpose of this managerial report is to address

the concerns of the management team at Specialty Toys, Inc. and also to provide a

recommended order quantity for the Weather Teddy, the probability of stock-outs related to

specific order quantities, and the potential profits associated with certain order quantities.

The company sells a variety of toys throughout the year. However, Specialty Toys plans to

release the Weather Teddy in October, before the holiday season is officially underway.

Management has determined that this is the best time to release a holiday gift because many

families have already begun shopping for holiday gifts at this time. In order to have the

Weather Teddy on the shelf by October, the company must place a one-time order with its

manufacturer in either June or July. Due to the large gap between when orders are placed and

actual products are produced, the most important question the company faces is determining

the correct number of units to purchase in order to meet customer demand. The company

must balance this desire to meet customer demand with the potential loses that could result

from having excess inventory left over from the holiday season that must be sold at a reduced

cost.

There is considerable disagreement between the management team over what the correct

order quantity should be. Estimates have ranged from 15,000 to 28,000. This variation clearly

shows a large degree of disagreement amongst the management team over how successful

they believe the Weather Teddy will be. Through our discussions with management, we have

learned that each Weather Teddy will be sold for $24. Each toy will cost $16 for the company

to manufacture and sell. Therefore, the net profit for each Weather Teddy sold is $8.

However, any unsold Weather Teddys after the holiday season will be sold for a reduced

price of $5. Based on this discounted price, Specialty Toys will end up losing $11 on every

toy left over from the holiday season. In addition, Specialtys senior sales forecaster predicted

an expected demand of 20,000 units with a .90 probability that demand would be between

10,000 and 30,000 units. We used these management estimates to perform our analysis and

probability calculations.

This managerial report is based on the Senior Sales Forecasters prediction that expected

demand for the Weather Teddy will be 20,000 units and that there is a 90% probability that

unit demand will be between 10,000 and 30,000 units.

Below is a distribution graph showing the details of the forecasters prediction. The mean of

the distribution is the expected 20,000 units and the standard deviation is 6079 units. Z

scores for the 90% probability that units sold will be between 10,000 and 30,000 units are 1.645 and +1.645, respectively.

.05

10,000

0

.90

20,000

3

.05

5

30,000

0

At x = 30,000,

= 1.645

As noted in the Specialty Toys Business Model section, the company must balance the

additional profits associated with each toy sold ($8) against the losses that will be incurred for

any toys leftover after the holiday season ($11). Below, we provide the probability that

Specialty Toys will run out of the Weather Teddy based on estimated quantities provided to

us by management.

@ 15,000

P(stockout) = 0.7939

Analysis: There is an approximately 79.39% chance that Specialty Toys will run out of the

Weather Teddy if the company orders 15,000 units.

@ 18,000

P(stockout) = 0.6293

Analysis: There is an approximately 62.93% chance that Specialty Toys will run out of the

Weather Teddy if the company orders 18,000 units.

@ 24,000

P(stockout) = 0.2546

Analysis: There is an approximately 25.46% chance that Specialty Toys will run out of the

Weather Teddy if the company orders 24,000 units.

@ 28,000

P(stockout) = 0.0934

Analysis: There is an approximately 9.34% chance that Specialty Toys will run out of the

Weather Teddy if the company orders 28,000 units.

Profit Potential

Based on the case, where price of Weather Teddy p = $24, per unit cost c = $16, and

inventory will be sold at i = $5, profit can be calculated as followed:

If

If

Unit

Sales

10,000

20,000

30,000

Total

Cost

240,000

240,000

240,000

Sales

at $24

at $5

240,000

360,000

360,000

25,000

0

0

Profit

25,000

120,000

120,000

Unit

Sales

10,000

20,000

30,000

Total

Cost

288,000

288,000

288,000

Sales

at $24

at $5

240,000

432,000

432,000

40,000

0

0

Profit

-8,000

144,000

144,000

Unit

Sales

10,000

20,000

30,000

Order Quantity: 28,000

Unit

Sales

10,000

20,000

30,000

Total

Cost

384,000

384,000

384,000

Total

Cost

448,000

448,000

448,000

Sales

at $24

at $5

240,000

480,000

576,000

70,000

20,000

0

Sales

at $24

at $5

240,000

480,000

672,000

90,000

40,000

0

Profit

-74,000

116,000

192,000

Profit

-118,000

72,000

224,000

One of Specialtys managers felt 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 ordered under this policy, and what is the projected profit under the

three sales scenarios?

In order to calculate the quantity needed to ensure a 70% chance of meeting demand, we first

determined the Z score associated with a 70% probability. Using Microsoft Excel, we

calculated the Z score to be approximately .5244, rounding to four decimals. We can now

calculate the quantity associated with a 70% probability by inputting in our known values to

the following formula:

30%

70%

20,000 Q

z = 0.52

P (X < K) = 0.7

P (Z < (K 20,000) / 6079) = 0.7

(K 20,000) / 6079 = 0.5244

K = 20000 + 6079 * 0.5244 = 20000 + 2675 = 23,188 units to be ordered

In order to assure a 70% chance of meeting customer demand, we recommend that Specialty

Toys place a one-time order for 23,188 toys. The projected profits under the 3 scenarios are

computed below.

Order Quantity: 23,188

Unit

Sales

10,000

20,000

30,000

Total

Cost

371,008

371,008

371,008

Sales

at $24

at $5

240,000

480,000

556,512

65,940

15,940

0

Profit

-65,068

124,932

185,504

Recommendations

There were several different factors that we took into account when making our

recommendation and deciding on a suitable order quantity. Factors to consider included the

probability of a stock out, potential profits from several different possible quantities

demanded, loss of profits in the event a stock out does take place, and finally added revenues

associated with the discount sale of excess goods on hand.

After analyzing the results of our calculations based on managements expectations, we find

the probability of demand being greater than or equal to 15,000 or 18,000 units is too large

for these quantities to be sufficient. Ordering a quantity of goods at far below level s of

expected demand create a high probability (80% and 63%) that Specialty Toys will sell out of

Weather Teddy stock and lose sales revenue. The probability of stock outages occurring

drastically decrease to 25 % and 9% in forecasts of higher quantities demanded of 24,000 and

28,000 units, respectively.

In addition, a single-period inventory model recommends an order quantity that maximizes

expected profit based on the following formula:

P(Demand Q* )

cu

cu co

where P(Demand Q* ) is the probability that demand is less than or equal to the

recommended order quantity, Q * . cu is the cost of underestimating demand (having lost

sales because of a stockout) and co is the cost per unit of overestimating demand (having

unsold inventory). Specialty will sell Weather Teddy for $24 per unit. The cost is $16 per

unit. So, cu = $24 - $16 = $8. If inventory remains after the holiday season, Specialty will sell

all surplus inventory for $5 a unit. So, co = $16 - $5 = $11.

P(Demand Q* )

8

0.4211

8 11

0.4211

0.5789

Q*

z = -0.20

The profit projections for this order quantity are computed below:

Order Quantity: 18,784

Unit

Sales

10,000

20,000

30,000

Total

Cost

300,544

300,544

300,544

Sales

at $24

at $5

240,000

450,816

450,816

43,920

0

0

Profit

-16,624

150,272

150,272

Based on the information in the case, we recommend a quantity with a large probability of

meeting customer demand. Specialty Toys should order the quantity that maximizes expected

profit of Weather Teddy. From the calculation above, we can see that if the company orders

18,784 units, the expected profit will be largest out of the four quantities, which is $150,272.

In order to have a better understanding of the specific quantity of units needed, more

information is necessary including industry sales trends of recent products and sales history of

similar products. Given the risks associated with over purchasing, Specialty Toys

management would also need to provide the interval of probability in which they expect to

meet consumer demand.

Other options that we alternatively recommend would be to negotiate higher rates with

contract manufacturers to produce additional rush orders in October if demand is high when

the toys are released. Additionally, Specialty Toys could sign contracts with discount retailers

prior to October specifying a fixed unit price (above the reduced price the toys would be sold

at) for all excess toys to avoid excess loss.

10

- Case study - Business Schools of Asia PacificUploaded byShashank Chauhan
- Specialty Toys_weather TeddyUploaded byAnuj Sharma
- Specialty Toys Problem.pdfUploaded bySantanu Das
- Specialty Toys Case StudyUploaded byKuldeep Kumar
- Homework StatisticsUploaded byLemery
- Case Study #3 - Gulf Real Estate (Q 1-3)Uploaded byrascal1331
- Speciality ToysUploaded bySourav Sharma
- 04 Case Ch06Uploaded bythemercyangel
- Cost & Management Accounting for MBA 13, Binder 2014Uploaded bySK Lashari
- Hamilton County Judges Case StudyUploaded bytnk1983
- LP2.2_Andrea_StarkweatherUploaded byAndi Starkweather
- Pelican Stores Case StudyUploaded byaatikak
- 2010-06-24_043236_Specialty_ToysUploaded byJayaKhemani
- Motivation Plan LDR 531 Week 5Uploaded byKimberly England
- Gulf View CaseUploaded byPushkar Sarda
- Case Study 2 Hamilton County Judges - Essays - XxjonxxUploaded byscribd_sandeep
- Failure Analysis Change StrategyUploaded byHoumanRahimian
- Business Schools of Asia Pacific_G7Uploaded byAishwarya Chinta
- Asia PacificUploaded byshonubabus
- 05_SBE11E_CaseSol_Ch09Uploaded byDewan Joheb Zaman
- Pelican StoreUploaded byksmadvincula4963
- 7CasesFA10Uploaded by王太八
- 01 Case Ch02Uploaded byMani Mehala S
- par inc.Uploaded byHàMềm
- HW1 Radar v6Uploaded bydjamasb
- Modern Business Statistics Case Study Quality AssociationUploaded byMd Reza
- Design a Flowchart for a ProcessUploaded bycurtisgrl4ever
- Huron Automotive Company_ExcelUploaded byanubhav1109
- AssignmentUploaded byLê Nữ Hải Yến
- D U SingerUploaded bybalramkinage

- TPGS 03Uploaded byNia ニア Mulyaningsih
- Ielts Reading Practice Test Dirty WaterUploaded byNaveen Narwal Naruson
- IELTS Reading Practice Test 01Uploaded byHàMềm
- Book1 (Autosaved)Uploaded byHàMềm
- ReferenceUploaded byHàMềm
- IPPTChap002.pptxUploaded byHàMềm
- IPPTChap001Uploaded byHàMềm
- 19e_CaseAsssignmentQuestionsTNCase_17.pdfUploaded byHàMềm
- Draft Circular Stipulating Minimum Safety Limits and RatiosUploaded byHàMềm
- 51 de speaking moi va cu.pdfUploaded byPhat Nguyen
- Accounting Principles and PracticesUploaded byHàMềm
- DeAnhD_DHUploaded bylyly1995
- ch17Uploaded byHàMềm
- ch18Uploaded byHàMềm
- applications A+BUploaded byHàMềm
- What ZUploaded byHàMềm
- chap14Uploaded byHàMềm
- Case Study 2Uploaded byHàMềm
- Executive SummaryUploaded byHàMềm
- TB Ch 10Uploaded bylichelles
- Statistics Group3Uploaded byHàMềm
- par inc.Uploaded byHàMềm
- 2009-07-16_030945_ex_parUploaded byHàMềm
- tin1Uploaded byHàMềm
- Chap-001Uploaded byHàMềm
- Business Plan ReportUploaded byHàMềm
- Quiz_1_K53Uploaded byHàMềm
- A2.Abcd ThanhHaUploaded byHàMềm
- ha diep anhUploaded byHàMềm

- 19321 AccountingUploaded byOruko Demba
- STATCONUploaded byAngel
- An Empirical Comparison of CdsUploaded byArturs Kadincovs
- Ratio AnalysisUploaded bySandesha Weerasinghe
- CH13 Course HerooooUploaded byMajor Pipe
- Syllabus_2009_10Uploaded byAnas Mansoor
- 57924417 Project Report 2Uploaded byShane Fernandes
- ABE Level 6 Developing International Markets Study GuideUploaded byimanuel31
- CLARKSONS Methods and Soruces for Voyage EstimationsUploaded byDaniel Koh
- Solution Chapter 8.pdfUploaded byZaenal Arifin
- Bond Market1Uploaded byPavas Singhal
- CAPEX & OPEXUploaded bykumar
- equity analysis of 3 IT companiesUploaded byAnas Kapadia
- Ipa Crisis in Creative Effectiveness 2019Uploaded byJeffri Tanamal
- Pension RegulationsUploaded bySathiya Raj
- TOPICS IN EMPIRICAL FINANCE WITH R AND RMETRICSUploaded byDhruvShah
- The Foreign Exchange MarketUploaded bymanojpatel51
- bataproject-150813171954-lva1-app6891Uploaded bySumit Singh
- Economics Class X 10Uploaded byishtiaqrockstar
- Lecture Slides - MonopolyUploaded byAdarsh Ramesh
- Green Building pptUploaded byGourav Sachdeva
- Consumer Behavior shubham srivastavaUploaded byShubham Srivastava
- TQ_U4_Salaries_23.pdfUploaded byRafaelKwong
- Solutions to EPS Examples 1-7 for PostingUploaded byvir1672
- Global Currency War - REUTERS - 2010-10-06Uploaded byDmitry Bratsun
- Chapter 10 Costing and Pricing of a Drug FormulationUploaded byS.Srinivasan ('Chinu'); Renu Khanna
- CbaUploaded byRitesh Batra
- 4_2007_jun_qUploaded byapi-19836745
- 21556557 Demand Anaysis Godrej InterioUploaded byChetan Dixit
- Mg2451 Engineering Economics and Cost Analysis l t p c3 0 0 3Uploaded byAnonymous p8bHAAx