MGT 3121 – The Gilbert Air Conditioning Company is considering purchase
1. The Gilbert Air Conditioning Company is considering purchase of a special shipment of portable air conditioners from Japan. Each unit will cost Gilbert $80 and be sold for $125. Gilbert does not want to carry over surplus air conditioners to the following year. Thus, all surplus units will be sold to a wholesaler who has agreed to take them for $50 per unit. Given the probability distribution for air conditioners shown below,Demand01234Estimated probability0.30.350.20.10.05a) Recommend an order quantity.b) What’s the expected profit given your answer from part a)?c) What’s the probability of stocking out given your answer from part a)?d) What’s your recommended order quantity if Gilbert is willing to tolerate a 0.2 probability of a stockout?e) Using your answer to part d), what’s the goodwill cost you are assigning to a stockout?
