3-12 Sensitivity, Prediction Errors, and Inflation Refer to Problem 3-10. As president of Look Rite, you are concerned that inflation may squeeze your profits. Spe- cifically, you feel committed to the five-dollar selling price and fear that dilut- ing the quality of the packs in the face of rising costs will be an unwise marketing move. You expect cost prices of the packs to rise by 10 percent during the forthcoming year. Therefore, you are tempted to avoid the price rise by placing a noncancellable order with a large supplier that would provide 50,000 packs of a specified quality for each store at $4 per pack. (To simplify this analysis, assume that all stores will face identical demands.) These packs could be acquired and paid for as delivered throughout the year. However, all packs must be delivered to the stores by the end of the year. As a shrewd merchandiser, you can foresee some risks in the sense that you deal exclusively in high-fashion goods that are subject to rapid obsolescence. If sales were less than 50,000, you feel that markdowns of the unsold mer- chandise would be necessary to move the goods. You predict that the average selling price of the leftover packs would be $3. The regular sales commission of 5 percent of sales would be paid.