Question

The Evergreen Company owns acreage of shrub trees to be harvested and sold each spring. The company estimates the costs of cutting and trimming the trees to be $2.50 per tree. The cost of shipping the trees to the retailer is about $0.50 per tree at the retailer's expense, and Evergreen receives about $5.00 per tree ordered by the retailer. The historical demand distribution is as follows and the expected demand is calculated as 280. Quantity sold Probability 100 0.05 150 0.10 200 0.10 250 0.20 300 0.25 350 0.15 400 0.10 450 L 0.05 a) Determine the optimal order quantity for the retailer and expected profits. b) The Evergreen is not happy with the current tree sales and wishes to sell more products to the retailer. In order to entice the retailer to order more trees, Evergreen offers the trees at a cost of $2.5, in turn it asks 25% revenue on each product sold. The shipping cost is still at the retailer's expense. Determine the retailer's optimal order quantity c) Determine the expected profits for the retailer and Evergreen. d) What is the fill rate?

Answer 1

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