Question

Allround Knit(AK), a wholesaler of wool sweaters, sources the sweaters from an Wisconsin company, Chico Inc. (CI), for $15 per sweater when ordered 3 months ahead of the selling season. AK’s wholesale price is $30. At the end of the selling season
discount outlets buy the sweaters from AK at $13 each. AK’s demand forecast for the sweater is normally distributed with a mean of 2,500 sweaters and standard deviation of 1,200 sweaters.
1. If management wants a 97% probability of satisfying every customer, what is AK’s order quantity before the selling season.

a. 4,768 sweaters
b. 5,920 sweaters
c. 5,164 sweaters
d. .9978 x 2,000 = 1,996 sweaters
e. (2,000/1,200) x 2,000 =3,333.3 sweaters

2. The mismatch cost between supply and demand is defined as the cost of over ordering times the expected leftover inventory plus the cost of under ordering times the expected lost sales. If the cost of underage is $3 , cost of overage is $12 and AK orders 3,520 sweaters, what is AK’s approximate mismatch cost?
a. 1584

b. 1980

c. 3456

d. 5040

e. 14220

3. If the cost of underage $3 , cost of overage is $12 and AK orders 3,520 sweaters, what is AK’s approximate expected profit?
a. $6,720 (loss)
b. $24,960 (gain)
c. $15,040 (gain)
d. $14,400 (loss)

Answer 1