FTX Inc, an electronics system integrator, is developing a new product as part of their year-to-year generational upgrades. Due to their long business history, Setronics is being considered as the producer of a key component for this product. Setronics sells this component for $55 per unit with a 2-month lead time including production and transportation. Assume Setronicss gross margin is 25% of its selling price for units produced in these early orders.FTXs demand forecast for the upcoming selling season (12 months) is a normal distribution with mean 8845 and standard deviation 25. FTX sells each unit, after integrating some software, for $135. Leftover units at the end of the season are sold for $30. FTX uses a holding cost rate of 25 %.

Suppose Setronics is willing to give FTX a midseason replenishment (still with a 2-month lead time) but charges FTX 25% more than their regular price, since Setronics estimates that its unit cost for the second production run is 25% larger than that for the initial order.

a)How many of these components should FTX order (in the initial and second replenishment), given this opportunity? Calculate expected profits for FTX and Setronics.