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 1,000 and a standard deviation of 600.
Solectrics' production cost for the component is $52 per unit and it plans to sell the component for $72 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 $121 each. Flextrola can sell unsold inventory at the end of the season in a secondary electronics market for $50 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.
a. What is the probability that Flextrola's demand is between 800 and 1,200 units?
b. Under this contract, how many units should Flextrola order to maximize its expected profit?
c. What is Flextrola's expected profit when the order quantity calculated in Part (b) is ordered? For Parts (d) through (h), assume Flextrola orders 1,200 units.
d. What are Flextrola's expected sales?
e. How many units of inventory can Flextrola expect to sell in the secondary electronics market?
f. What is Flextrola's expected profit?
g. What is Solectrics' expected profit?
h. What is Flextrola'sstockout probability?