A t-shirt company is
planning a production run for an event where the attendance (and thus demand
for t-shirts) is uncertain. The event planners have indicated that they think
the attendance will be 500, 750 or 1000, with probabilities of 30%, 50% and
20% respectively. The company must pre-order the blank t-shirts (cost=$5 per
shirt) and it can sell finished shirts for $12 apiece. Any finished shirts
that cannot be sold at the event can be sold for $2 apiece to a used clothing
Refer to Exhibit 2-1. What Excel function
is useful for calculating the expected value of demand for t-shirts? What is
the expected demand?
What Excel function
is useful for calculating revenue? Explain why it is useful.
What are the two
possible cases for the amount of t-shirts that will be sold to the used
clothing vendor? How would you calculate this amount in a spreadsheet model?
Suppose that blank
t-shirts can only be ordered from the wholesale vendor in batches of 100? How
many t-shirts should the company order?
Suppose now that
blank t-shirts can only be ordered from the wholesale vendor in batches of
50? How many t-shirts should the company order?