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 vendor.
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?
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