Flextrola, Inc., an electronics systems integrator, is planning to design a key

Question

Flextrola, Inc., an electronics systems integrator, is planning to design a key component for their next generation product with Solectrics. Flextrola will integrate the component with some software and then sell it to consumers. Given the short life cycles of such products and the long lead times quoted by Solectrics, Flextrola only has one opportunity to place an order with Solectrics prior to the beginning of its selling season. Flextrola's demand during the season is normally distributed with a mean of 1200 and a standard deviation of 700. Solectrics' production cost for the component is $50 per unit, and it plans to sell the component for S70 per unit to Flextrola. Flextrola incurs essentially no cost associated with the software integration and handling of each unit. Flextrola sells these units to consumers for $123 each. Flextrola can sell unsold inventory at the end of the season in a secondary electronics market for $45 each. The existing contract specifies that once Flextrola places the order, no changes are allowed to it. Also, Solectrics does not accept any returns of unsold inventory, so Flextrola must dispose of excess inventory in the secondary market. If a part of the question specifies whether to use Table 13.4, or to use Excel, then credit for a correct answer will depend on using the specified method What is the probability that Flextrola's demand will be within 25% of its forecast? Round your answer to 4 decimal places.) What is the probability that Flextrola's demand will be more than 40% greater than a. Use Excel 0.3108 b. 0.2420 Flextrola's forecast? Use Excel. Round your answer to 4 decimal places.) Under this contract, how many units should Flextrola order to maximize its C. 1,550 expected profit? Use Table 13.4 If Flextrola orders 1200 units, how many units of inventory can Flextrola's expect to 850.00 sell in the secondary electronics market? Use Table 13.4 (Round your answer to 2 decimal If Flextrola orders 1200 units, what is expected sales? (Round your answer to 2 decimal If Flextrola orders 1200 units, what is expected profit? (Round your answer to 2 decimal places.) e. 350.00 places.) f. places.)

Explanation / Answer

a) Demand within 25%

Mean is 1200

Within 25% demand means +/- 300 from the mean.

Thus the value of x = 900,1500

Using excel

for 900, NORM.DIST(900,1200,700,TRUE) = 0.33411

The difference between the two gives the probability as required = 0.3318 ( rounded off to 4 decimal places)

b) more than 40% i.e 1200*40% = 480

Thus the probability for demand being greater than 1200+480 i.e >=1680

Using Excel :

= 0.2464

D) If ordered quantity = 1200

Z= 0

using standard normal loss function L(z) = 0.3989

Expected lost sales = 700*0.3989 = 279.23

Answer: 279.23 to be sold in the secondary market

e) Expected sales = 1200-279.23 = 920.77

f) Expected profit = 920.77*53 + 279.23*(-25) = 41820.06

for 1500, NORM.DIST(1500,1200,700,TRUE) = 0.66588

for 900, NORM.DIST(900,1200,700,TRUE) = 0.33411

The difference between the two gives the probability as required = 0.3318 ( rounded off to 4 decimal places)

b) more than 40% i.e 1200*40% = 480

Thus the probability for demand being greater than 1200+480 i.e >=1680

Using Excel :

=1-NORM.DIST(1680,1200,700,TRUE)

= 0.2464

D) If ordered quantity = 1200

Z= 0

using standard normal loss function L(z) = 0.3989

Expected lost sales = 700*0.3989 = 279.23

Answer: 279.23 to be sold in the secondary market

e) Expected sales = 1200-279.23 = 920.77

f) Expected profit = 920.77*53 + 279.23*(-25) = 41820.06

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