1. Use the sales forecaster's rediciton 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 rder quantities suggested by the management team under three scenarios: worst case in which sales = 10,000 units, most likely case in which sales = 20,000 units, and best case in which sales = 30,000 units.
4. One of Specialty's managers 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 be ordered under this policy, and what is that projected profit under the three sales scenarios.
5. Provide your own recommendation for an order quantity and note the associated profit projections. Provide a rationale for your recommendation.
This question was asked on Jul 18, 2010 and answered on Jul 18, 2010.
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