Exploring a new business opportunity

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Reference no: EM133852701

Assignment:

The Baltimore-based company Beyond Armor (BA) is exploring a new business opportunity: selling custom screen-printed sweatshirts for college football bowl games. BA is trying to determine how many sweatshirts to produce for the upcoming Tangerine Bowl game. During the month before the game, BA plans to sell their sweatshirts for $30 each. At this price, they believe the demand for sweatshirts will be (discretely) uniformly distributed between 8,000 and 12,000.

One month after the game, BA plans to sell any remaining sweatshirts to the local TJ Maxx and Marshalls outlets for $12 each. At this price, BA believes the demand will be either 500 units with a probability of 30%, 750 units with a probability of 40%, or 1000 units with a probability of 30%. Any remaining sweatshirts will be donated to a local charity with no profit.

BA can produce custom screen-printed sweatshirts for $10 each in batches of 200. Use simulation modeling to answer the following questions.

1. Use Excel to generate 1000 random instances of the demand before the game and 1000 random instances of the demand after the game, respectively. Calculate the average profit over these 1000 instances that BA would earn if she produced 10,000 sweatshirts.

2. How many sweatshirts would you recommend BA produce to maximize the expected profit? What is the maximal expected profit? (Hint: Recall that BA can produce in batches of 200. You may want to try a few values around 10,000 with a step size of 200.)

Reference no: EM133852701

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