1. Use the sales forecaster’s predication 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.

Let's assume that the expected sales distribution is normally distributed, with a mean of 20,000, and 95% falling within 10,000 and 20,000.

We know that +/- 1.96 standard deviations from the mean will contain 95% of the values. So, we can get the standard deviation by:

z = (x - mu)/sigma = 1.96
sigma = (x - mu)/z

Sigma = (30,000-20,000) / 1.96 = 5,102 units.

So, we have a distribution with a mean of 20,000 and a standard deviation of 5,102.

2. Compute the probability of a stock-out for the order quantities suggested by members of the management team.

Using the normal distribution theory, we discover that as the ordered quantity increases the probability of stockout decreases.

At 15,000 the probability of stockout will be 0.8365
At 18,000 the probability of stockout will be 0.6517
At 24,000 the probability of stockout will be 0.2177
At 28,000 the probability of stockout will be 0.0582

3. Compute the projected profit for the order 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:

Order Quantity: 15,000 were cost price is $16, selling price $24 & after holiday selling price $5 |Unit Sales |Profit |
|10,000 |25,000 |
|20,000 |120,000 |
|30,000 |120,000 |

Order Quantity: 18,000 were cost price is $16, selling price $24 & after holiday selling price $5 |Unit Sales |Profit |
|10,000 |-8,000 |
|20,000 |144,000 |
|30,000...

...Solution to Case Problem SpecialtyToys
10/24/2012
I. Introduction:
The SpecialtyToys Company faces a challenge of deciding how many units of a new toy should be purchased to meet anticipated sales demand. If too few are purchased, sales will be lost; if too many are purchased, profits will be reduced because of low prices realized in clearance sales. Here, I will help to analyze an appropriate order...

... Case 13: Southeastern Specialty, Inc.
Financial Risk (1, 2, 3, 4, & 6)
1. Is the return on the one-year T-bill risk free?
No, the return on the one-year T-bill is not risk free. Financial risk is related to the probability of earning a return less than expected and the larger the chance of earning a return far below that expected, the greater the amount of financial risk. Risk free assumes 100% probability that the investment will earn the total percent of...

...be the demand for the toy. Then X follows normal distribution with mean μ = 20000 and standard deviation σ. Then
P(10000 < X < 30000) = 0.95
P( X < 20000)=0.5
P(10000 < X < 20000) = 0.475
P( X < 10000)=0.025
NORM.S.INV(0.025)=-1.96
NORM.S.INV(0.975)=1.96
Z-score of 10000 =-1.96
Z-score of 30000=1.96
σ = (30000-20000)/1.96 =10000/1.96 = 5102
Standard Deviation of 5102
The graph above shows the distribution for the demand for the Weather Teddy Bear using...

...BIGLOW TOY COMPANY
In late August 1997, Jean Biglow, treasurer of Biglow Toy Company, was concerned with
financing its sales operations during the upcoming Christmas selling season. To cope with the
Christmas sales peak, Jean planned to build up Biglow’s toy inventory throughout the fall. This
would generate substantial cash deficits in October, November, and December. Some means of
short-term financing had to be found to cover these deficits. On...

...cost of financing by discounting the cash flows by the weighted average cost of capital which leads to good decisions. In the case of Dinky Company the NPV was $304,976.61 so the project should be accepted.
The internal rate of return is an alternative to the NPV method. This method is internal to the project, and only relies on the cash flows of the project. In our case we would compare the IRR of to our WACC of 13.3%. Our IRR is significantly higher...

...Introduction
In this case we get an entire scenario about how the Japan deflation set in, what were the effects of the deflation on the economy as well as on the people of Japan. It also mentions about the various reasons because of which Japan was in such a tight grip of Deflation, Depression, Demographics and Debts Guides us through the steps taken by the government in order to curb this deflation. Imparts a great knowledge to us about the various economic terms like...

...
CASESTUDY NO.1
Mary Roberts had been with the company three years when she was promoted to manager of the tax department which was part of the controller’s division.Within four months she became a supervisor of ten staff accountants to fill a vacancy.Her superior believed her to be most qualified individual to fill the position.
Many senior employees resent her that she so young to fill the position and what made them more upsets was the fact tax managers...

...needed answers to these questions in
the coming days.
This casestudy discusses the start-up, origins and strategic options facing an innovative set up
and start up in automotive market and in the seat design. With the domination of the
incumbent large suppliers serving the top 3 leading tier-one automakers of U.S.,
Elio
Engineering faces several challenges as it seeks to introduce its new seating technology to the
market. The case can...

1241 Words |
4 Pages

Share this Document

Let your classmates know about this document and more at StudyMode.com

## Share this Document

Let your classmates know about this document and more at StudyMode.com