Teddy Bower is an outdoor clothing and accessories chain that purchases a line o
ID: 336920 • Letter: T
Question
Teddy Bower is an outdoor clothing and accessories chain that purchases a line of parkas at $10 each from its Asian supplier, TeddySports. Unfortunately, at the time of order placement, demand is still uncertain. Teddy Bower forecasts that its demand is normally distributed with mean of 2,100 and standard deviation of 1,200. Teddy Bower sells these parkas at $22 each. Unsold parkas have little salvage value; Teddy Bower simply gives them away to a charity and receives a tax credit of 20% COGS. Teddy has decided to sell rainboots to supplement its parkas product offerings. Rainboots are also procured from an outside supplier at a cost of $10/rainboot, but this time the supplier is located in South Carolina. As a result, it only takes the supplier 3 weeks to fulfill an order (once placed) and it costs $300 to ship the order. As with parkas, demand for rainboots is uncertain; as opposed to parkas, demand for rainboots exists throughout the year. Teddy Bower has the ability to carry inventory at a minimal annual carrying cost estimated to be 10% of the product cost (any unsold rainboots can be held in inventory to meet future demand). Teddy Bower estimates the annual demand for rainboots to be normally distributed with a mean of 4000 and standard deviation of 1000. Given the high profit margin on rainboots, Teddy Bower does not want to lose more than 2% of potential sales for rainboots. When should Teddy Bower submit an order to its supplier for (more) rainboots? When the current inventory (in-stock) is… a. between 250-350 b. between 350-450 c. between 550-650 d. between 650-750 e. between 750-850 How much should Teddy Bower order? a. 500 to 1000 b. 1000 to 1500 f. 1500 to 2000 g. 2000 to 2500 h. 2500 to 3000 i.
Explanation / Answer
Teddy Bower is an outdoor clothing and accessories chain that purchases a line of parkas at $10 each from its Asian supplier, TeddySports. Unfortunately, at the time of order placement, demand is still uncertain. Teddy Bower forecasts that its demand is normally distributed with mean of 2,100 and standard deviation of 1,200. Teddy Bower sells these parkas at $22 each. Unsold parkas have little salvage value; Teddy Bower simply gives them away to a charity and receives a tax credit of 20% COGS. Teddy has decided to sell rainboots to supplement its parkas product offerings. Rainboots are also procured from an outside supplier at a cost of $10/rainboot, but this time the supplier is located in South Carolina. As a result, it only takes the supplier 3 weeks to fulfill an order (once placed) and it costs $300 to ship the order. As with parkas, demand for rainboots is uncertain; as opposed to parkas, demand for rainboots exists throughout the year. Teddy Bower has the ability to carry inventory at a minimal annual carrying cost estimated to be 10% of the product cost (any unsold rainboots can be held in inventory to meet future demand). Teddy Bower estimates the annual demand for rainboots to be normally distributed with a mean of 4000 and standard deviation of 1000. Given the high profit margin on rainboots, Teddy Bower does not want to lose more than 2% of potential sales for rainboots. When should Teddy Bower submit an order to its supplier for (more) rainboots? When the current inventory (in-stock) is… a. between 250-350 b. between 350-450 c. between 550-650 d. between 650-750 e. between 750-850 How much should Teddy Bower order? a. 500 to 1000 b. 1000 to 1500 f. 1500 to 2000 g. 2000 to 2500 h. 2500 to 3000 i.
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