The Highland Company (THC) is planning orders for its winter catalog. One order is to be placed at the beginning of the season. The demand forecast for one of its jackets is normal, with a mean of 5,000 and standard deviation of 2,000. Each jacket is purchased for $100, and any unsold jackets at the end of the season will be discounted and sold through the outlet store for $75. At this price, virtually all jackets are expected to sell. It costs another $15 to store an unsold jacket for the season and then move it to the outlet store. There is basic disagreement within the buying committee on the effect of stocking out and the number of jackets to be ordered. One of the members feels that 6,000 jackets should be ordered, whereas another feels that 8,000 jackets should be ordered.

a) At what cost of stocking out would each of the member's order size be justified?

Mean demand		5000
Standard deviation of demand		2000
Purchase Price		$ 100
Discount Price		$ 75
Extra Cost to Move to Outlet Store		$ 15
Order size		6000

b) If the planned sale price is $200, describe a situation in which ordering 6,000 jackets makes sense. Describe another situation in which ordering 8,000 jackets makes sense.

Answer rating: 100% (QA)

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