Specialty Of Toys

1.
Let X = the demand for the toy.

X follows normal distribution with mean μ = 20000 and standard deviation σ.

P (10000 < X < 30000) = 0.95

P ((10000-20000)/σ < (X-20000)/σ < (30000-20000)/σ) = 0.95

From tables of areas under the standard normal curve

(30000-20000)/σ = 1.96
σ = (30000-20000)/1.96
=10000/1.96
= 5102
2.

Probability of stock out with an order of K units is P(X > K) = P (Z > (K-20000)/5102), where Z
is distributed as standard normal and z will be greater than K must be 1.000 – cumulative
probability.

Order (K) (K-20000)/5102 P(X > K): 1- cumulative

probability
15,000 -0.98001 0.836458876
18,000 -0.392 0.652472052
24,000 0.784006 0.216518215
28,000 1.568013 0.058439102

3.

15,000 units at a cost of $16/unit = $240,000 was invested total.

In Worst case: 10000 x 24 + 5000 x 5 = $265,000
a Profit of $25,000.

In Most likely: 15000 x 24 = $360,000

a Profit of $120,000.

Best case: 15000 x 24 = $360,000

a Profit of $120,000.

18,000 units at a cost of $16/unit = $288,000 was invested totals.

In Worst case: 10000 x 24 + 5000 x 5 = $265,000
a Loss of $23,000.

In Most likely: 18000 x 24 = $432,000

a Profit of $144,000.

Best case: 18000 x 24 = $432,000

a Profit of $144,000. 

 24,000 units at a cost of $16/unit = $384,000 was investment totals.

In Worst case: 10000 x 24 + 5000 x 5 = $265,000,
a Loss of $119,000.
In Most likely: 20000 x 24 + 4000 x 5 = $500,000,
a Profit of $116,000.

Best case: 24000 x 24 = $576,000,

a Profit of $192,000

28,000 units at a cost of $16/unit = $448,000 was investment totals.

In Worst case: 10000 x 24 + 5000 x 5 = $265,000,
a Loss of $183,000.

In Most likely: 20000 x 24 + 4000 x 5 = $500,000,

a Profit of $52,000.

Best case: 28000 x 24 = $672,000,

a Profit of $224,000

4.

The order quantity to meet 70% demand is found by solving

P(X < K) =0.70
P (Z < (K-20000)/5102) = 0.70
(K-20000)/5102 = 0.5244
K = 20000 + 5102 * 0.5244
= 20000 + 2675
= 22,675 units to be ordered.

5.
In the Best Case, the Expected Sales Price is 22,675 x 24 = $544,200.
The suggested order quantity is 22,675, therefore the Cost is 22, 675x16 = $362,800.
Sales are expected to be 30,000 so there is no stock out as the projected profit is 544,
200 – 362,800 = $181,400.

In the Most Likely Case Scenario the Expected Sale Price = 544,200,
the Cost is 22,675 x 16 = 362,800.
There is no stock out in this case as the Projected profit = 544,200 – 362,800 = $181,400.

In the Worst Case Scenario the Expected sales = 10,000 x 24 = $240,000 as based on sell at $24
on cost of $16 per unit.
The expense is 22,675 x 16 = $362,800.
Stock out is 12,675 units (22, 675– 10, 000).
These will be sold at $5 per unit = 12,675 *5 = $63,375,
Total sale price = 240,000 + 63,375 = $303,375,
Projected profit = 362,800 – 303,375 = $59,425.

Orders between 15,000 to 18,000 units should be requested because there will be realized profits,
even in the worst scenarios.