Question

Pony Express Creations Inc. (www.pony-ex.com) is a manu- facturer of party hats, primarily for the Halloween season. (80 percent of their yearly sales occur over a six-week period.) One of their popular products is the Elvis wig, com- plete with sideburns and metallic glasses. The Elvis wig is produced in China, so Pony Express must make a single order well in advance of the upcoming season. Ryan, the owner of Pony Express, expects demand to be 25,000 and the following is his entire demand forecast:
The Elvis wig retails for $25, but Pony Express's wholesale price is $12. Their produc-tion cost is $6. Leftover inventory can be sold to discounters for $2.50.
a. Suppose Pony Express orders 40,000 Elvis wigs. What is the chance they have to liquidate 10,000 or more wigs with a discounter?
b. What order quantity maximizes Pony Express's expected profit?
c. If Pony Express wants to have a 90 percent in-stock probability, then how many Elvis wigs should be ordered?
d. If Pony Express orders 50,000 units, then how many wigs can they expect to have to liquidate with discounters?
e. If Pony Express insists on a 100 percent in-stock probability for its customers, then what is its expected profit?


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  • CreatedMarch 31, 2015
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