In preparing for the upcoming holiday season, Fresh Toy Company
(FTC) designed a new doll called The Dougie that teaches children
how to dance. 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, FTC will sell
the dolls for $42 each. If FTC overproduces the dolls, the excess
dolls will be sold in January through a distributor who has agreed
to pay FTC $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. FTC has tentatively decided to produce 60,000 units
(the same as average demand), but it wants to conduct an analysis
regarding this production quantity before finalizing the
decision.
a) Create a what-if spreadsheet model using a formula that
relate the values of production quantity, demand, sales, revenue
from sales, amount of surplus, revenue from sales of surplus, total
cost, and net profit. What is the profit corresponding to average
demand (60,000 units)?
b) Modeling demand as a normal random variable with a mean of
60,000 and a standard deviation of 15,000, simulate the sales of
the Dougie doll using a production quantity of 60,000 units. What
is the estimate of the average profit associated with the
production quantity of 60,000 dolls? Round your answer to the
nearest dollar.
c) 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? Round your answers to
the nearest dollar.
50,000-unit production quantity: $
70,000-unit production quantity: $
