Question

As the summer season approaches, BeyondBest – a retail store – is planning to stock a new model of ice cream maker at its store. The retail price for this ice cream maker will be set at $28. BeyondBest purchases this product directly from the manufacturer who sells each ice cream maker to BeyondBest for $20. Each ice cream maker costs the manufacturer $7.5 to make. The demand for this ice cream maker at BeyondBest for the upcoming summer season is estimated to be normally distributed with a mean of 100 and a standard deviation of 42. At the end of the summer season, BeyondBest will sell any remaining inventory of the ice cream maker at the clearance price of "75% Off" from the original retail price. What is the overage cost for the ice cream maker from BeyondBest’s perspective?

Answer 1

The overage cost for Beyond Best for each ice cream maker is $13, calculated by subtracting the clearance price of $7 from the purchase price of $20.

Step-by-step explanation:

The overage cost for Beyond Best when stocking a new model of ice cream maker is the cost incurred when the store ends up with excess inventory that cannot be sold at the original price. BeyondBest sells the ice cream maker for $28, but purchases it for $20. At the end of the season, any unsold inventory is sold at a clearance price of 75% off the original price, which is $7 ($28 x 0.25). The overage cost per item, therefore, is the difference between the clearance price and the purchase price from the manufacturer. The calculation for the overage cost is $20 - $7 = $13. This is the loss Beyond Best incurs for each ice cream maker that must be sold at clearance.