What is the critical ratio for the graduation stoles

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Reference no: EM133518014

Assignment:

The graduation season is coming to Cambridge! A family-owned store has been embroidering graduation stoles for decades and is now getting ready for the upcoming season.

Considering all stoles are manufactured manually by the family, and the same team embroidering is working on distribution and sales, once the graduation season begins, they have no chance of replenishing the stoles' inventory.

Grandpa Jesse is working on defining how many stoles to manufacture this season. Historical data shows that demand for stoles follows a continuous uniform distribution with a minimum of 0 and a maximum of 850 units. Sewing and embroidering stoles cost $14 per unit, and stoles are sold for $57 each.

1. What's the Critical Ratio for the graduation stoles?

Enter your answer with two decimal places.

2. What's the optimal quantity they should manufacture to maximize profit for the upcoming season?

3. If Jesse wants the probability of running out of stock to be lower than 5%, how many graduation stoles should be manufactured?

4. Grandma Sandra reminds Jesse that customers who buy a stole at the store often also purchase a graduation hat. Therefore, when stoles are sold out and a customer cannot buy one, it results in a potential lost sale of a graduation hat, incurring a penalty cost of $22.

What would be the new optimal quantity to manufacture considering this new piece of information?

Reference no: EM133518014

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