In preparing the upcoming holiday season, Mandrell Toy Company designated a new doll called Freddy.? The fixed cost to produce the doll is $100,000.? The variable cost, which includes material, labor, and shipping costs, is $34 per doll.? During the holiday selling season, Mandrell will sell the doll for $42 each.? If Mandrell overproduces the dolls, the excess dolls will be sold in January through a distributor who has agreed to pay Mandrell $10 per doll.? Demand for new toys during the holiday selling season is extremely uncertain.? Forecasts are for expected sales of 60,000 dolls with a standard deviation of 15,000.? The normal probability distribution is assumed to be a good description of the demand.
(a)? Create a worksheet similar to the inventory worksheet in Figure 16.10.? Include columns showing demand, sales, revenue from sales, amount of surplus, revenue from sales of surplus, total cost, and net profit.? Use your worksheet to simulate the sales of the Freddy doll using a production quantity of 60,000 units.? Using 500 simulation trials, what is the estimate of the mean profit associated with the production quantity of 60,000 dolls??
(b) Before making a final decision on the production quantity, management wants an analysis of a more aggressive 70,000 unit production quantity and a more conservative 50,000 unit production quantity.? Run your simulation with these two production quantities.? What is the mean profit associated with each?? What is your recommendation on the production of the Freddy doll?
(c)? Assume that Mandrell?s management adopts your recommendation, what is the probability of a stock-out and a shortage of the Freddy dolls during the holiday season?