Titleabc123 Version X1case Study Superfun Toysqnt561 Ver ✓ Solved
SuperFun Toys, Inc., sells a variety of new and innovative children’s toys. Management learned the pre-holiday season is the best time to introduce a new toy because many families use this time to look for new ideas for December holiday gifts. When SuperFun discovers a new toy with good market potential, it chooses an October market entry date. To get toys in its stores by October, SuperFun places one-time orders with its manufacturers in June or July of each year. Demand for children’s toys can be highly volatile.
If a new toy catches on, a sense of shortage in the marketplace often increases the demand to high levels and large profits can be realized. However, new toys can also flop, leaving SuperFun stuck with high levels of inventory that must be sold at reduced prices. The most important question the company faces is deciding how many units of a new toy should be purchased to meet anticipated sales demand. If too few are purchased, sales will be lost; if too many are purchased, profits will be reduced because of low prices realized in clearance sales. This is where SuperFun feels that you, as an MBA student, can bring value.
For the coming season, SuperFun plans to introduce a new product called Weather Teddy. This variation of a talking teddy bear is made by a company in Taiwan. When a child presses Teddy’s hand, the bear begins to talk. A built-in barometer selects one of five responses predicting the weather conditions. The responses range from “It looks to be a very nice day! Have fun” to “I think it may rain today. Don’t forget your umbrella.” Tests with the product show even though it is not a perfect weather predictor, its predictions are surprisingly good. Several of SuperFun’s managers claimed Teddy gave predictions of the weather that were as good as many local television weather forecasters.
As with other products, SuperFun faces the decision of how many Weather Teddy units to order for the coming holiday season. Members of the management team suggested order quantities of 15,000, 18,000, 24,000, or 28,000 units. The wide range of order quantities suggested indicates considerable disagreement concerning the market potential. Having a sound background in statistics and business, you are required to perform statistical analysis and the profit projections which is typically done by the product management group. You want to provide management with an analysis of the stock-out probabilities for various order quantities, an estimate of the profit potential, and to help make an order quantity recommendation.
SuperFun expects to sell Weather Teddy for $24 based on a cost of $16 per unit. If inventory remains after the holiday season, SuperFun will sell all surplus inventories for $5 per unit. After reviewing the sales history of similar products, SuperFun’s senior sales forecaster predicted an expected demand of 20,000 units with a 95% probability that demand would be between 10,000 units and 30,000 units.
Paper For Above Instructions
In this analysis for SuperFun Toys regarding the new product, Weather Teddy, it is essential to evaluate the order quantities suggested by team members alongside the market forecast for demand. The suggested order quantities of 15,000, 18,000, 24,000, and 28,000 must be assessed against projected sales data to make well-informed recommendations.
Market Analysis: SuperFun expects demand for Weather Teddy to top out at 20,000 with a variance between 10,000 and 30,000. Understanding these metrics will aid in calculating the risk of stock-out (running out of inventory) at various order levels. Below is a breakdown of profitability based on the different order quantities.
Profit Projections for Suggested Order Quantities
The profitability of SuperFun's Weather Teddy can be calculated based on the cost, order quantities, sales projections, and prices. The profit formula can be stated as:
Profit = Total Revenue - Total Cost
1. Order Quantity: 15,000 Units
Cost = $16 * 15,000 = $240,000
Expected Revenue @ $24: (20,000 units) = $480,000
Profit when sold all: $480,000 - $240,000 = $240,000
Profit with stockouts: Chance of Stockout if demand is 30,000.
2. Order Quantity: 18,000 Units
Cost = $16 * 18,000 = $288,000
Expected Revenue @ $24: (20,000 units) = $480,000
Profit when sold all: $480,000 - $288,000 = $192,000
3. Order Quantity: 20,000 Units
Cost = $16 * 20,000 = $320,000
Expected Revenue @ $24: (20,000 units) = $480,000
Profit when sold all: $480,000 - $320,000 = $160,000
4. Order Quantity: 24,000 Units
Cost = $16 * 24,000 = $384,000
Expected Revenue @ $24: (20,000 units) = $480,000
Profit: $480,000 - $384,000 = $96,000
5. Order Quantity: 28,000 Units
Cost = $16 * 28,000 = $448,000
Expected Revenue @ $24: (20,000 units) = $480,000
Profit: $480,000 - $448,000 = $32,000
Risk Analysis: The higher the order quantity, the greater the risk of having excess inventory after the holiday season. Selling leftover units at $5 means significant losses if the predictions are incorrect. Under the worst-case scenario, if demand is only 10,000 and SuperFun ordered 28,000, they would have substantial increased costs and profit margins would drop significantly.
Recommendation: Based on analyzing the suggested quantities, placing an order for 20,000 units appears the most suitable balance between risk and expected profit. This order quantity matches the forecasted demand and minimizes stock-out risk while offering a reasonable profit margin.
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