Nordic Boots is making production decisions for ten boots and has two production runs. The first run is based on demand forecasts and the second one is based on actual demand. The first production run must include at least 4000 boots. Capacity is limited with the 2nd production run, but the 2nd production run can be decided after the actual demand is observed. Due to the production minimums, a boot is produced in either the first or the second run, but not in both.
a. Find-out the total expected profit with two production run opportunities.
b. Which boots should be in the first production run and which ones should be in the second production run?
c. Report clearly the (Q) order quantities for each boot style in the first run. Report also the expected total production capacity in the second run.
Item c μ σ $C_o$ $C_u$ Expected Profit Max profit
A 120 400 100 12.0 24.0 8,291 9,600
B 80 1,000 200 8.0 16.0 14,255 16,000
C 80 1,340 260 8.0 16.0 19,171 21,440
D 90 1,200 680 9.0 18.0 14,924 21,600
E 70 1,600 862 7.0 14.0 15,818 22,400
F 130 200 100 13.0 26.0 3,782 5,200
G 50 1,850 400 5.0 10.0 16,318 18,500
H 150 300 50 15.0 30.0 8,182 9,000
I 85 1,200 400 8.5 17.0 16,691 20,400
J 60 1,800 1100 6.0 12.0 14,401 21,600
