YB Sporting Apparel prints up novelty T-shirts commemorating major spons events

Question

YB Sporting Apparel prints up novelty T-shirts commemorating major spons events (e.g.,the Super Bowl, the World Series, Northwestem University winning the NCAA BasketballToumament). The T-shirts cost $5 to make and distribute and sell for $20. Company policyis to dispose of any excess inventory after the event by discounting the T-shins by 80percent, that is, sell them for $4. In 1994, YB printed shirts for the World Cup soccer playoffs in Chicago. It estimated demand at 12,000 shirts, with a signi cant amount ofuncertainty. Because of this uncertainty, YB printed only 10,000 shirts. What do you think ofthis decision? What quantity would you have recommended printing?

Explanation / Answer

let the actual quantity bought be x so revenue = 20x - 4(12000-x) cost = 5x so in order to break even 11x = 48000 , x = 4363 t shirts so when the demand is 12000 anything above 4363 is profitable by not printing the all the demanded t shirts the company is trying to avert the risk due to high uncertainity. i would suggest printing 12000 if the company is ready to take risk as the profits are huge for sale of 1 t shirt . profit is $15 when compared to $1 loss

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