In preparing for the upcoming holiday season, Fresh Toy Company (FTC) designed a
ID: 3311754 • Letter: I
Question
In preparing for the upcoming holiday season, Fresh Toy Company (FTC) designed a new doll called The Dougie that teaches children how to dance. The fixed cost to produce the doll is $100,000. The variable cost, which includes material, labor, and shipping costs, is $34 per doll. During the holiday selling season, FTC will sell the dolls for $42 each. If FTC overproduces the dolls, the excess dolls will be sold in January through a distributor who has agreed to pay FTC $10 per doll. Demand for new toys during the holiday selling season is extremely uncertain. Forecasts are for expected sales of 60,000 dolls with a standard deviation of 15,000. The normal probability distribution is assumed to be a good description of the demand. FTC has tentatively decided to produce 60,000 units (the same as average demand), but it wants to conduct an analysis regarding this production quantity before finalizing the decision.
Create a what-if spreadsheet model using formulas that relate the values of production quantity, demand, sales, revenue from sales, amount of surplus, revenue from sales of surplus, total cost, and net profit. What is the profit corresponding to average demand (60,000 units)?
(a)Create a what-if spreadsheet model using formulas that relate the values of production quantity, demand, sales, revenue from sales, amount of surplus, revenue from sales of surplus, total cost, and net profit. What is the profit corresponding to average demand (60,000 units)?
(c) Before making a final decision on the production quantity, management wants an analysis of a more aggressive 70,000-unit production quantity and a more conservative 50,000-unit production quantity. Run your simulation with these two production quantities. What is the mean profit associated with each? When ordering 50,000 units, the average profit is approximately $When ordering 70,000 units, the average profit is approximately $
Explanation / Answer
A simple net profit model is shown above. It is straightforward formulae.
Also a case of 60,000 dolls as demand (when 60000 dolls are produced) is given.
It generates a netprofit of $ 380,000
c)
To generate a demand with a normal distribution of average of 60,000 and a standard deviation of 15,000 in excel
use the formula norm.inv(rand(),60000,15000,TRUE)
Drag it for 200 trials of demand in the excel sheet. Once demand is generated for 200 trials, paste as values so that the values don't change.
Then average the net profit column.
You will see something like this
When ordering 50,000 units the netprofit is found to be $ 226,908
Change the ordered to be 70,000 you will see something like this
When ordering 70,000 units the netprofit is found to be $ 91,384
FC Ordered Demand Sales Revenuefrom sales Surplus Revenue
from surplus Total revenue Vc total cost Net profit IF(C3>B3,B3,C3) D3*42 IF(B3>C3,B3-C3,0) F3*10 E3+G3 B3*34 I3+A3 H3-J3 100,000 50,000 70,894 50,000 2,100,000 - - 2,100,000 1,700,000 1,800,000 300,000 100,000 50,000 58,570 50,000 2,100,000 - - 2,100,000 1,700,000 1,800,000 300,000 100,000 50,000 75,057 50,000 2,100,000 - - 2,100,000 1,700,000 1,800,000 300,000 100,000 50,000 62,786 50,000 2,100,000 - - 2,100,000 1,700,000 1,800,000 300,000