Question Details

Purpose of Assignment

The purpose of this assignment is for students to learn how to make managerial decisions using a case study on Normal Distribution. It provides students an opportunity to perform sensitivity analysis and make a decision while providing their own rationale. This assignment also shows students that statistics is rarely used by itself. It shows tight integration of statistics with product management.

Assignment Steps

Resources: Microsoft Excel^®, SuperFun Toys Case Study, SuperFun Toys Case Study Data Set

Review the SuperFun Toys Case Study:

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.

Develop a 1,100-word case study analysis including the following: 

•Use the sales forecaster's prediction to describe a normal probability distribution that can be used to approximate the demand distribution.

•Sketch the distribution and show its mean and standard deviation.

•Compute the probability of a stock-out for the order quantities suggested by members of the management team (i.e. 15,000; 18,000; 24,000; 28,000).

•Compute the projected profit for the order quantities suggested by the management team under three scenarios: pessimistic in which sales are 10,000 units, most likely case in which sales are 20,000 units, and optimistic in which sales are 30,000 units.

•One of SuperFun's managers felt the profit potential was so great the order quantity should have a 70% chance of meeting demand and only a 30% chance of any stock- outs. What quantity would be ordered under this policy, and what is the projected profit under the three sales scenarios?