Question: Electrola, Inc., an electronics systems integrator, is planning to design a key component for their next-generation product with Solectrics. Electrola will integrate the component with
Electrola, Inc., an electronics systems integrator, is planning to design a key component for their next-generation product with Solectrics. Electrola 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, Electrola only has one opportunity to place an order with Solectrics prior to the beginning of its selling season. Electrolas 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 Electrola. Electrola incurs essentially no cost associated with the software integration and handling of each unit. Electrola sells these units to consumers for $121 each. Electrola can sell unsold inventory at the end of the season in a secondary electronics market for $50 each. The existing contract specifies that once Electrola places the order, no changes are allowed to it. Also, Solectrics does not accept any returns of unsold inventory, so Electrola must dispose of excess inventory in the secondary market.
Assume Electrola orders 1,200 units, what is the probability that Electrola has lost sales of 400 units or more?
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