# A retail outlet sells holiday candy for \$10 per bag. The cost of the product is \$8 per bag. All units not sold during the selling season prior to the holiday are sold for half the retail price in a

A retail outlet sells holiday candy for \$10 per bag. The cost of the product is \$8 per bag. All units not sold during the selling season prior to the holiday are sold for half the retail price in a postholiday clearance sale. Assume that demand for bags of holiday candy during the selling season is uniformly distributed between 200 and 800.

a. What is the recommended order quantity?

b. What is the probability that at least some customers will ask to purchase the product after the outlet is sold out? That is, what is the probability of a stock-out using your order quantity in part (a)?

c. To keep customers happy and returning to the store later, the owner feels that stock-outs should be avoided if at all possible. What is your recommended order quantity if the owner is willing to tolerate a 0.15 probability of a stock-out?

d. Using your answer to part (c), what is the goodwill cost you are assigning to a stock-out?

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...