books inc sells books to Texas Campus Store at $12 each. The marginal production
ID: 400150 • Letter: B
Question
books inc sells books to Texas Campus Store at $12 each. The marginal production cost for Books inc is $1 per book. Texas Campus Store prices the book to its customers at $24 and expects demand over the next two months to be normally distributed, with a mean of 20,000 and a standard deviation of 5,000. Texas Campus Store places a single order with books inc for delivery at the beginning of the two-month period. Currently, Texas Campus Store discounts any unsold books at the end of two months down to $3, and any books that did not sell at full price sell at this price.
Q1. How many books should Texas Campus Store order?
What is its expected profit for Campus Store?
What is the profit that the books inc makes, given Texas Campus Store’s actions?
Explanation / Answer
M Mean 20000 s Std Dev 5000 Retailer C 12 p 24 v 3 Co Overage cost 9 C-v Cu Underage cost 12 p-c Fq Critical ratio 0.57143 Cu/(Cu+Co) Z Z value 0.180016 Q Optimal quantity 20900.1 M+s*Z 20900.1 NORMINV(Fq,M,s) Ans 1 L(Z) Loss function = 0.315381 Campus store Expected profit = (Cu+Co)*(M-SL(Z) - Co *Q 198784.3 Ans 2 Ma Margin for books inc = (12-1) 11 Profit for books inc = Q*Ma 229900.9 Ans 3
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