One fashion apparel company is taking orders for one limited edition knapsack. Production capacity is 500 units. The contribution margin is $22 per unit. The company is currently taking orders from the retailers. If the company has orders that exceed capacity, it has to arrange for backup that results in a loss of $10 per unit.
Retailers could cancel their orders without any penalty. Cancellations are assumed to be normally distribution with a mean of 80 and a standard deviation of 35. Please show work in excel.
1) In order to maximize its profit, how many orders should the fashion company accept?
2) How should the loss associated with unfulfilled orders change, so that the fashion company would take 20 more orders?