Question

PA 13.8 (Algo) Geoff Gullo owns a small flrm that manufactures... Geoff Gullo owns a small firm that manufactures "Gullo Sunglasses". He has the opportunity to sell a particular seasonal model to Land's Start, a catalog retaller. Geoff offers Land's Start two purchasing options. Use Table 13.4. - Option 1: Geoff offers to set his price at $70 and agrees to credit Land's Start $53 for each unit Land's Start returns to Geoff at the end of the season (because those units did not sell). Because styles change each year, there is essentially no value in the returned merchandise. - Option 2. Geoff offers a price of $60 for each unit, but returns are no longer accepted. In this case, Land's Start throws out unsold units at the end of the season. This season's demand for this model will be normally distributed with a mean of 150 and a standard devation of 125 . Land's Start will sell those sunglasses for $104 each. Geoff's unit production cost is $21. Note: If a part of the question specifies whether to use Table 13.4, or to use Excel, then credit for a correct answer will depend on using the specified method. a. How much would Land's Start buy if it chose option 1? Use Table 13.4 and round-up rule. Note: Round your answer up to a whole number. b. How much would Land's Start buy if it chose option 2? Use Table 13.4 and round-up rule. Note: Round your answer up to a whole number. c. Use Table 13.4. Which option will Land's Start choose? Complete the table below. Note: Use your rounded order quantities from Parts a \& b. Round your "Expected Inventory and Expected Sales" to 2 decimal places. d. Suppose Land's Start chooses option 1 and orders 250 units. What is Geoff Gullo's expected profit? Use Table 13.4 and the round-up rule. Note: Do not round Intermedlate calculations. Round your answer up to a whole number. TABLE 13.4 The Distribution, F(Q), and Expected Inventory, I(Q), Functions for the Standard Normal Distribution Function

Answer 1

The question deals with a business decision on choosing the most profitable purchasing option for a retailer when buying sunglasses from a manufacturer. It involves analyzing expected values, demand distributions, and comparing the profitability of two different pricing strategies.

Step-by-step explanation:

This question is focused on making a business decision regarding which purchasing option a retailer should choose when buying sunglasses from a manufacturer, taking into account the anticipated demand, costs, and potential for unsold inventory. The manufacturer offers two options; one with a higher price that includes the possibility to return unsold units and another with a lower price without the possibility of returns.

The decision will be based on calculations of the expected profits or losses for each option using provided averages and standard deviations of demand, prices, and production costs. To answer these questions, one needs to analyze the expected value of the inventory, determine how many units will likely be sold, and compare the profitability of each option.