I do not understand how the optimal order quantity was calculated. Please explain.
Data from Book: Retailer wholesale price = $24 Retail sales price excess of $50 Blank jersey to Indianapolis distribution center (delivered) = $9.50 Dressed jersey to Indianapolis distribution center (delivered) = $10.90 Decorating cost for blank jerseys = $2.40 Leftover dressed jerseys discounted for = $7.00 Reebok's cost holding cost = 11% Table below provides forecast for the New England Patriots. The six named players were the most popular in terms of jersey sales, futhermore these six players each had a demand forecast that was sufficent to cover the CM's (contract manufactuers) minimum order quantity. Whereas Reebok did expect demand for other players, this demand was even harder to forecast and was not likely to excend the CM's minimum order quantity. hence, Reebok developed an aggregate forecast of more than 23,000 jerseys for all other players. Players named jerseys = dressed jerseys Other players = blank jerseys. I worked up the overage and underage cost: Cost of blank overage = $9.50 x 11% = $1.045 Cost of blank underage = $24.00-9.50-2.40= $12.10 Cost of dressed overage = $10.90 -$7.00 = $3.90 Cost of dressed underage = $24.00-10.90= $13.10
