Question

patagonia is considering the sales of a sweater for the winter season. the sweater will be sold for only one season. the company has plans to sell each sweater at $220, and it purchases the sweaters from its supplier at $120 per unit. the company knows that it can salvage any leftover sweaters at $80 at outlet stores. based on the experience of previous seasons, experts at the company are predicting the sales to range between 3,000 and 8,000 with the associated probabilities:

Answer 1

The company are predicting the sales to range between 3,000 and 8,000 with the associated probabilities is 8000 when probability is 0.85.

Cu is equal to 140 minus 70, which equals 70.

Co = Salvage Value - Purchase Price = 70 - 50 = 20

Level of Service = Cu/(Cu + Co)

Level of Service = 70/90

77.78% of the service level is 0.7778.

The demand information and corresponding cumulative likelihood are shown below.

Compound Probability

Demand Probability Cumulative Probability

4,000 0.1 0.1

5,000 0.15 0.25

6,000 0.25 0.5

7,000 0.2 0.7

8,000 0.15 0.85

9,000 0.15 1

We must find the demand level that corresponds to the cumulative probability that is just little higher than the service level 77.78%. Nest higher to 77.78% is 85% from above (or 0.85).

Demand equals 8000 when probability is 0.85.

Consequently, the ideal order size is 8000.

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