The annualized cost of acquiring capacity for the new Barracuda drives at Seagat
ID: 466719 • Letter: T
Question
The annualized cost of acquiring capacity for the new Barracuda drives at Seagate is calculated as $20 per unit and the contribution margin for the product is $40 per unit. The demand forecast for the Barracuda drives is uniform between 100 and 200.
What service level (percentile of demand met) should Seagate target for in building capacity? How much capacity will it build?
Conduct the capacity calculations in when the forecast for the Barracuda drives is expected to follow the following distribution:
Demand will be less than
Probability
Cumulative Probability
100
0.1
0.1
120
0.2
0.3
140
0.3
0.6
160
0.1
0.7
180
0.15
0.85
200
0.15
1.0
Demand will be less than
Probability
Cumulative Probability
100
0.1
0.1
120
0.2
0.3
140
0.3
0.6
160
0.1
0.7
180
0.15
0.85
200
0.15
1.0
Explanation / Answer
The estimated demand is= 145 units
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