Specialty Toys Essay

880 words - 4 pages

Specialty Toys- Specialty Toys, Inc. sells a variety of new and innovative children’s toys. Management learned that the preholiday season is the best XXXX XX introduce a new toy, because many families use this time to look for new ideas for December holiday gifts. When Specialty discovers a new toy with good market potential, it chooses an October market entry date. In order to get toys in its stores by October, Specialty places one-time orders with its manufacturers in June or July of each year. Demand for children’s toys can be highly volatile. If a new toy catches on, a sense of shortage in the marketplace often increases the demand to high levels and large profits can be realized. ...view middle of the document...

Members of the management team suggested order quantities of 15,000, 18,000, 24,000, or 28,000 units. The wide range of order quantities indicates considerable disagreement concerning the market potential. The product management team asks you for an analysis of the stock-out probabilities for various order quantities, an estimate of the profit potential, and to help make an order quantity recommendation. Specialty expects to sell Weather Teddy for $24 based on a cost of $16 per unit. If inventory remains after the holiday season, Specialty will sell all surplus inventories for $5 per unit. After reviewing the sales history of similar products, Specialty’s senior forecaster predicted an expected demand of 20,000 units with a .95 probability that demand would be between 10,000 units and 30,000 units. 1. Use the sales forecaster’s prediction to describe a normal probability distribution that can be used to approximate the demand distribution. Sketch the distribution and show its mean and standard deviation. 2. compute the probability of a stock-out for the order quantities suggested by members of the management team 3. compute the projected profit for the order quantities suggested by the management team under three scenarios: worst case in wwhich sales = 10000 units, most likely case in which sales=20000 units and best case in which sales=30000 units 4. one of specialty's managerrs felt that 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 would...

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