Specialty Toys Case Study 3-2

Nathan Farmer

Management Science

Week 3 Case Study

Specialty Toys

BVU

Specialty toys Inc. is a company that makes toys. Each year they have to get ready for the holiday season. In order to get ready for the holidays they must have submitted to the toy marking plant by June or July of ever year. This has to be done in order to get the pre-holiday season toys out by October.

Specialty Toys Inc.is have a problem deciding the amount of toys that they should preorder. They don’t want to order too few of toys because this could cut down on the money that the company could be bring in. However if they order too many of the product that take the chance of having product left over and it price being discounted. In this case study I’m going to explore the process of finding the amount of toys that should be ordered by the company in order for the company to have just enough toys.

To start out with the company is expecting a demand of 20,000 unit to be sold during the holidays. However the company needs a calculated answer because the company also show the probability of 95% that it will be between 10,000 to 30,000 toys sold. The company wants to meet the demand as close as possible so below you will find calculations to find this number.

First off we need to find the standard deviation the formula that I will use to solve this is:

Z=x-µ/O

1.96=30,000-20,000/0

O=10,000/ 1.96

O= 5,102.04

2. Probability of stock out with an order of K units is P(X > K) = P(Z > (K-20000)/5102), where Z is distributed as standard normal

Order Z=x-µ/O Probability of Stock-Out

15000 -0.98 0 .1635

18000 -0.39 0.0010

24000 0.78 0.7823

28000 1.56 0.9406

Part three is where we calculated profit and loss by using the following formula:

Quality Sold X (price-cost)- stock (cost-liquidation).

Below is a table of the results for the worst, likely and best for all four...