NoNo is a producer of high-end YoYo's (they only make one product) at unit production cost $10. The YoYos only sell during the summer, and a new model is launched every year. The total production lead time is 6 months. The YoYo is currently sold in 100 different identical retailers. They pay a unit wholesale price of $15 and sell at a unit revenue of $30. Unit salvage value is $8. Each retailer faces a normal distribution of demand with mean of 100 and standard deviation of 40.
Mississippi.com- a large internet retailer- is planning to move into the high end YoYo's. They would pay a unit price of $13 and sell at unit revenue $25 (with salvage value the same at $8). Demand would then be normally distributed with expected value of 5000 units and standard deviation 290. The number of retailers would then be reduced to 50, each with the expected demand of 120 units and standard deviation of 45. All cost and revenue parameteres would stay the same for the retailers.
A. How many YoYos should each retailer order? Show your work
B. How many YoYos should mississippi.com order? Show your work
C. What is the manufacterer profit? Show your work
Rather than use Mississippi.com the manufacterer can choose to start up an internet retailer called Nile.com to sell their YoYos. Nile.com would then sell at the same unit revenue and have the same expected demand and standart deviation as Mississippi.com. There will however be some fixed costs associated with running Nile.com.
A. What is the maximum fixed cost of Nnile.com that makes Nile.com preferable to using Mississippi.com (for the manufacterer)? Show your work.