Specialty Toys

Group 3:Meenakshi Mishra

Anuvab Palit
Soumyadeep Roy
Abhijit Chanda
Sourav Sharma

Analysis
Lets consider a normal probaility distribution N( , 2 ) for the sales
forecast prediction.

Let X be the continuous random variable that denotes demand for the toy.
Then X follows normal distribution with mean = 20000 (as forecaster
predicted an expected demand of 20000 units) and standard deviation .
Then
Probability that X lies between 10000 and 30000 = P(10000 < X < 30000)
= 0.90

Let Z be the standard normal variable :

Z = (X - )/

P((10000-20000)/ < (X-20000)/ < (30000-20000)/) = 0.90

=> P((10000-20000)/ < Z < (30000-20000)/) = 0.90

=> p(-10000/ < Z < 10000/) = 0.90

 As normal distribution is symmetric ,

p(-10000/ < Z<0) = 0.45
From tables of areas under the standard normal curve
p(-1.645 < Z <0) = 0.45
Therefore, 10000/ = 1.645

=> = 6079

Normal Distribution Curve

Speciality Toys
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 22000 24000 26000 28000 30000 32000 34000 36000 38000

Question 2
For stock-out for order quantities , demand > quantities
ordered

Case 1: Ordered quantities = 15000

Probability of stock out with an order of 15000 units
= P(X > 15000) = P(Z > (15000-20000)/6079) = P(Z >
-0.822) = 1- 0.2066 = 0.7933

Case 2: Ordered quantities = 18000

Probability of stock out with an order of 18000 units
= P(X > 18000) = P(Z > (18000-20000)/ 6079) = P(Z >
-0.329) = 1- 0.3483 = 0.3632

Question 2 (cont.)
Case 3: Ordered quantities = 24000
Probability of stock out with an order of 24000 units
= P(X > 24000) = P(Z > (24000-20000)/ 6079) = P(Z > 0.658) = 10.7454 = 0.2546

Case 4: Ordered quantities = 28000

Probability of stock out with an order of 18000 units
= P(X > 28000) = P(Z > (28000-20000)/ 6079) = P(Z > 1.316) = 10.9075 = 0.09425

Question 3
The projected profit for the different order quantities and scenarios
is calculate as :

(Selling price - Cost price) of Sold units * no of sold units + (Selling

price - Cost price) of UnSold/surplus units * no. of surplus units

= (24-16) * no of sold units + (5-16) * no. of surplus units

= 8 * no of sold units - 11 * no. of surplus units

=>Equation 1

Question 3 (cont.)
Profit for all the cases is calculated in the
following table :

30000 units cannot be sold if the ordering quantities are 15000,

18000, 24000 and 28000. Also, 20000 units cannot be sold when the
ordering quantities are 15000 and 18000. So in these two cases we
can consider that the full ordered quantity is exhausted (i.e. sold).

Question 4
Let K be the number of items needs to ordered.
As K needs to meet 70% of demand,
Therefore,
P(X < K) =0.70
P(Z < (K-20000)/ 6079) = 0.70

From the table,

P(Z < 0.525) = 0.70
Hence, (K-20000)/ 6079= 0.525
=> K = 20000 + 6079* 0.525 = 20000 + 3191 = 23191.

Question 4(cont.)
Equation for the number of items when there is 30% chance of stock-out is
given by

P(X > K) =0.30

=> P(X<K) = 0.7

Hence, 23191items should be ordered.

Using Equation 1, we calcualte the profit for 23191 items as follows: