Case Problem
7/13/2020
Specialty Toys
1
Case Problem Specialty Toys
Table of Contents
Summary of data available in case.......................................................................1
Analysis 1..............................................................................................................1
Solution1...........................................................................................................1
Analysis 2..............................................................................................................3
Solution2...........................................................................................................3
Question3.............................................................................................................4
Solution3............................................................................................................4
Question 4.............................................................................................................4
Solution 4...........................................................................................................4
Question 5.............................................................................................................4
Solution5............................................................................................................4
Summary of data available in case
Members of the management team suggested order quantities of 15,000,
18,000, 24,000, or 28,000 units.
Specialty expects to sell Weather Teddy for $24 based on a cost of $16 per
unit.
If inventory remains after the holiday season, Specialty will sell all surplus
inventory for $5 per unit.
After reviewing the sales history of similar products, Specialty’s senior sales
forecaster predicted an expected demand of 20,000 units with a 0.95
probability that demand would be between 10,000 units and 30,000 units.
Analysis 1
Use the sales forecaster’s prediction to describe a normal probability
distribution that can be used to approximate the demand distribution. Sketch
the distribution and show its mean and standard deviation.
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Case Problem Specialty Toys
Solution1
Let’s suppose d be demand of the toy
Since expected value is 20,000, Mean, μ = 20,000
According to the problem statement, sales forecaster predicted an expected
demand of 20,000 units with a .95 probability that demand would be between
10,000 units and 30,000 units.
So, P (10000 < d < 20000) = 0.95
Z = (X – μ)/ σ
Z value for probability of 95% is 1.96
1.96 = (30000-20000)/ σ
σ = 5102.04
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Case Problem Specialty Toys
Normal distribution of the demand is represented in above graph. The
calculated standard deviation is 5,102
Analysis 2
Compute the probability of a stock-out for the order quantities suggested by
members of the management team.
Solution2
Let’s suppose d be demand of the toy
Probability of stock out for N units of order = P (d> N)
Order 1: 15000
Z = (15000 – 20000)/5102
Z = -0.98
Cumulative probability for -0.98 = 0.1635
P(d>N) = 1- 0.1635 = 0.8365
Order 2: 18000
Z = (18000 – 20000)/5102
Z = -0.3920
Cumulative probability for -0.39 = 0.3483
P(d>N) = 1- 0.3483= 0.6517
Order 3: 24000
Z = (24000 – 20000)/5102
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Case Problem Specialty Toys
Z = 0.784
Cumulative probability for 0.784= 0.7823
P(d>N) = 1- 0.7823 = 0.2177
Order 4: 28000
Z = (28000 – 20000)/5102
Z = 1.568
Cumulative probability for 1.568 = 0.9418
P(d>N) = 1- 0. 9418= 0.0582
Question3
Solution3
Question 4
Solution 4
Question 5
Solution5