Problem 16-11 (Algorithmic)

In preparing for the upcoming holiday season, Fresh Toy Company(FTC) designed a new doll called The Dougie that teaches childrenhow to dance. The fixed cost to produce the doll is $100,000. Thevariable cost, which includes material, labor, and shipping costs,is $34 per doll. During the holiday selling season, FTC will sellthe dolls for $42 each. If FTC overproduces the dolls, the excessdolls will be sold in January through a distributor who has agreedto pay FTC $10 per doll. Demand for new toys during the holidayselling season is extremely uncertain. Forecasts are for expectedsales of 60,000 dolls with a standard deviation of 15,000. Thenormal probability distribution is assumed to be a good descriptionof the demand. FTC has tentatively decided to produce 60,000 units(the same as average demand), but it wants to conduct an analysisregarding this production quantity before finalizing thedecision.

1. Create a what-if spreadsheet model using a formula that relatethe values of production quantity, demand, sales, revenue fromsales, amount of surplus, revenue from sales of surplus, totalcost, and net profit. What is the profit corresponding to averagedemand (60,000 units)?
   
   $ ____________________
   
2. Modeling demand as a normal random variable with a mean of60,000 and a standard deviation of 15,000, simulate the sales ofthe Dougie doll using a production quantity of 60,000 units. Whatis the estimate of the average profit associated with theproduction quantity of 60,000 dolls? Round your answer to thenearest dollar.
   
   $ ____________________
   
   How does this compare to the profit corresponding to the averagedemand (as computed in part (a))?
   
   Average profit is MORE THAN/ LESS THAN/ EQUAL TO the profitcorresponding to average demand.
   
3. Before making a final decision on the production quantity,management wants an analysis of a more aggressive 70,000-unitproduction quantity and a more conservative 50,000-unit productionquantity. Run your simulation with these two production quantities.What is the mean profit associated with each? Round your answers tothe nearest dollar.
   
   50,000-unit production quantity: $ ______________
   
   70,000-unit production quantity: $ ______________
   
4. In addition to mean profit, what other factors should FTCconsider in determining a production quantity?
   
   _______________________________________________________
   
   
   Compare the three production quantities (50,000, 60,000, and70,000) using all these factors. What trade-offs occur? Round youranswers to 3 decimal places.
   
   50,000 units: ________________
   
   60,000 units: ________________
   
   70,000 units: ________________
   
   What is your recommendation?
   
   ________________________________________________