Finding cost of overstocking

Assignment Help Marketing Management

Reference no: EM131853734

Question: Cody Ltd. manufactures winter jackets for sale in the United States. Demand for jackets during the season is distributed as follows:

Probability Demand [thousands]

0.1 18

0.2 19

0.4 20

0.2 21

0.1 22

Each jacket sells for $60 and costs $30 to produce. Any leftover jackets at the end of the season are currently sold for $25 at the year-end clearance sale. Holding jackets until the year-end sale adds another $5 to their cost.

A recent recruit has suggested shipping leftover jackets to South America for sale in the winter there rather than running a clearance. Each jacket will fetch a price of $38 in South America and all jackets sent there are likely to sell. Shipping costs add $5 to the cost of any jacket sold in South America.

A. Would you recommend the South American option? How will it impact profitability at Cody Ltd.?

B. On average, how many jackets will Cody Ltd. ship to South America each season?

Hint. To solve the exercise, you need to compare the expected profit for the two options (Current policy; South American options).

Here you pay an inventory cost of $5 for each unit of left over. Therefore, any time you order an additional unit and you won't sell it (= Co) the additional cost for the company is the purchasing cost of the additional unit PLUS the inventory cost of the additional unit (since you don't sell it) MINUS the salvage value.

Moreover, in the South American option, you pay $5 to ship a unit of leftover to South America: this cost adds to the cost of overstocking (Co).

Reference no: EM131853734

Questions Cloud

What are some ways of preventing corrupting : What are some ways of preventing corrupting and role should businesses play?

Invest directly in automobile production : What factors underlay the decision by Volkswagen to invest directly in automobile production in Russia?

Stock returns are good predictor of future returns : In finance, we generally assume that stock returns are normally distributed. Stock returns are a good predictor of future returns

Create a Virtual Private Database in Oracle : SDEV 350 Homework - Oracle Virtual Private Database. This homework provides an opportunity for the student to create a Virtual Private Database in Oracle

Finding cost of overstocking : Moreover, in the South American option, you pay $5 to ship a unit of leftover to South America: this cost adds to the cost of overstocking (Co).

What are common attributes of hrm programs : What are common attributes of HRM programs, and what are effective employee outreach efforts that lead to engagement and high employee performance?

Overstatement or understatement errors in payroll liability : As the auditor, you are assigned to test whether there are any overstatement or understatement errors in the payroll liability for the Roger Corporation.

What role does corporate reputation play in organization : "Faced with clear evidence that it was losing market share because consumers increasingly preferred beverages without artificial flavoring and chemical.

What is the value of the slack or surplus : At the optimal solution, which constraint is not binding, what is the value of the slack or surplus? Provide an economic interpretation of the slack or surplus.

User Account

All Pages