Option affect production and profitability at champion

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Reference no: EM131475768

Champion manufactures winter fleece jackets for sale in the United States. Demand for jackets during the season is normally distributed with a mean of 20,000 and a standard deviation of 10,000. Each jacket sells for $60 and costs $30 to produce. Any leftover jackets at the end of the season are sold for $25 at a year-end clearance sale. Holding jackets until the year-end sale adds another $5 to their cost. A recently hired Boise State SCM graduate has suggested shipping leftover jackets to South America for sale in the winter there rather than running a clearance. Each jacket will sell for $35 in South America, and all jackets sent there are highly 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? Support your decision with calculations.

B. How will the South American option affect production and profitability at Champion?

C. On average, how many jackets will Champion ship to South America each season? (Note: you have already calculated this value in order to get the expected profit for the South American option).

Reference no: EM131475768

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