In the Previous Problem,the Manufacturer Performs Additional Market Research

question 57

Essay

In the previous problem,the manufacturer performs additional market research.Based on this research,they determine that they can increase the price to $150 and are able to reduce the standard deviation of the forecast to σ = 30.At the same time,they have made an arrangement with an outlet store that will purchase unsold equipment for $60 each.How will these changes affect the cost of overstocking,cost of understocking,optimal cycle service level and optimal order size?

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Definitions:

Bargain Purchase Option

A clause in a lease agreement allowing the lessee to purchase the leased asset at the end of the lease term at a price significantly below its expected fair market value.

Executory Costs

Expenses related to executing a contract, such as maintenance and insurance costs, that are typically incurred over the contract's term.

FASB

The Financial Accounting Standards Board, responsible for establishing and improving financial accounting and reporting standards in the United States.