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Flextrola, Inc., an electronics systems integrator, is planning to design a key component for its next-generation product with Solectrics. Flextrola will integrate the component with some software and then sell it to consumers. Given the short life cycles of such products and the long lead times quoted by Solectrics, Flextrola only has one opportunity to place an order with Solectrics prior to the beginning of its selling season. Flextrola's demand during the season is normally distributed with a mean of 1,200 and a standard deviation of 600. Use Table 13.4, Figure 13.15.jpg, Figure 13.16.jpg Solectrics' production cost for the component is $52 per unit, and it plans to sell the component for $75 per unit to Flextrola. Flextrola incurs essentially no cost associated with the software integration and handling of each unit. Flextrola sells these units to consumers for $124 each. Flextrola can sell unsold inventory at the end of the season in a secondary electronics market for $49 each. The existing contract specifies that once Flextrola places the order, no changes are allowed to it. Also, Solectrics does not accept any returns of unsold inventory, so Flextrola must dispose of excess inventory in the secondary market. If a part of the question specifies whether to use Table 13.4, or to use Excel, then credit for a correct answer will depend on using the specified method. a. What is the probability that Flextrola's demand will be within 25% of its forecast? Use Excel (Round your answer to 4 decimal places.) b. What is the probability that Flextrola's demand will be more than 40% greater than Flextrola's forecast? Use Excel. (Round your answer to 4 decimal places.) c. Under this contract, how many units should Flextrola order to maximize its expected profit? Use Table 13.4. d. If Flextrola orders 1200 units, how many units of inventory can Flextrola's expect to sell in the secondary electronics market? Use Table 13.4. (Round your answer to 2 decimal places.) e. If Flextrola orders 1200 units, what are expected sales? (Round your answer to 2 decimal places.) f. If Flextrola orders 1200 units, what is expected profit? (Round your answer to 2 decimal places.)
Adi S.
1. Egress, Inc., is a small company that designs, produces, and sells ski jackets and other coats. The creative design team has labored for weeks over its new design for the coming winter season. It is now time to decide how many ski jackets to produce in this production run. Because of the lead times involved, no other production runs will be possible during the season. Predicting ski jacket sales months in advance of the selling season can be quite tricky. Egress has been in operation for only three years, and its ski jacket designs were quite successful in two of those years. Based on realized sales from the last three years, current economic conditions, and professional judgment, 12 Egress employees have independently estimated demand for their new design for the upcoming season. Their estimates are listed below: 14000 16000 13000 8000 14000 5000 14000 11000 15500 8000 10500 15000 To assist in the decision on the number of units for the production run, management has gathered the data in the table below. Variable production cost per unit (C): $80 Selling price per unit (S): $100 Salvage value per unit (V): $30 Fixed production cost (F): $100,000 Note that S is the price Egress charges retailers. Any ski jackets that do not sell during the season can be sold by Egress to discounters for V per jacket. The fixed cost of plant and equipment is F. This cost is incurred regardless of the size of the production run. a) Egress management believes that a normal distribution is a reasonable model for the unknown demand in the coming year. What mean and standard deviation should Egress use for the demand distribution? (Hint: Using sample mean and std dev) b) Use a spreadsheet model to simulate 1000 possible outcomes for demand in the coming year. Based on these scenarios, what is the expected profit if Egress produces Q = 7800 ski jackets? What is the expected profit if Egress produces Q = 12,000 ski jackets? What is the standard deviation of profit in these two cases? c) Based on the same 1000 scenarios, how many ski jackets should Egress produce to maximize expected profit? Should the optimal production equal mean demand or not? Explain. d) Create a histogram of profit at the optimal production level. Create a histogram of profit when the production level equals mean demand. What is the probability of a loss greater than $100,000 in each case?
Sri K.
CASE 15.1 Ski JACKET PRODUCTION Egress, Inc., is a small company that designs, produces, and sells ski jackets and other coats. Table 15.3 Monetary Values The creative design team has labored for weeks over its new design for the coming winter season. It is now time to decide how many ski jackets to produce in this production run. Because of the lead times involved, no other production runs will be possible during the season. Predicting ski jacket sales months in advance of the selling season can be quite tricky. Egress has been in operation for only three years, and its ski jacket designs were quite successful in two of those years. Based on realized sales from the last three years, current economic conditions, and professional judgment, 12 Egress employees have independently estimated demand for their new design for the upcoming season. Their estimates are listed in Table 15.2. Variable production cost per unit (C): Selling price per unit (S): Salvage value per unit: Fixed production cost (F) $80 $100 $30 $100,000 The fixed production cost (F) is incurred regardless of the size of the production run. Egress management believes that a normal distribution is a reasonable model for the unknown demand in the coming year. What mean and standard deviation should Egress use for the demand distribution? Use a spreadsheet model to simulate 1,000 possible outcomes for demand in the coming year. Based on these scenarios, what is the expected profit if Egress produces Q = 7,800 ski jackets? What is the expected profit if Egress produces Q = 12,000 ski jackets? What is the standard deviation of profit in these two cases? Based on the same 1,000 scenarios, how many ski jackets should Egress produce to maximize expected profit? Call this quantity Q. Should Q equal mean demand or not? Explain. Create a histogram of profit at the production level Q. Create a histogram of profit when the production level Q equals mean demand. What is the probability of a loss greater than $100,000 in each case? Table 15.2 Estimated Demands 14,000 13,000 14,000 14,000 15,500 10,500 16,000 8,000 5,000 1,000 8,000 15,000 To assist in the decision on the number of units for the production run, management has gathered the data in Table 15.3. Note that S is the price Egress charges retailers. Any ski jackets that do not sell during the season can be sold by Egress to discounters for $V per jacket. The fixed cost of plant and equipment is F.
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