The ABC company sells another product SKU379. But this is a seasonal product only sold in the spring. Seasonal demand is drawn from a normal distribution with mean 100 and standard deviation 25. The selling price is $40 per unit and the purchase cost is $10 per unit. All unsold units are destroyed at no cost.
i) What is the optimal order quantity?
ii) Suppose that Joe, an APICS certified analyst, informs you that he has heard about a new firm that for a fee of $100, will reduce the uncertainty in demand to a standard deviation of 10 units. Should you tell Joe to hire this new firm? Why or why not?
iii) How much are you willing to pay to reduce the standard deviation from 25 to 0?