Question: Cody Ltd. manufactures winter jackets for sale in the United States. Demand for jackets during the season is distributed as follows:
|
Probability
|
0.1
|
0.2
|
0.4
|
0.2
|
0.1
|
|
Demand [thousands]
|
18
|
19
|
20
|
21
|
22
|
Each jacket sells for $60 and costs $30 to produce. Any leftover jackets at the end of the season are currently sold for $25 at the year-end clearance sale. Holding jackets until the year-end sale adds another $5 to their cost.
A recent recruit has suggested shipping leftover jackets to South America for sale in the winter there rather than running a clearance. Each jacket will fetch a price of $38 in South America and all jackets sent there are likely to sell. Shipping costs add $5 to the cost of any jacket sold in South America.
a) Would you recommend the South American option? How will it impact profitability at Cody Ltd.?
b) On average, how many jackets will Cody Ltd. ship to South America each season?