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1
1.What are the two factors that can prevent a manager to maximize profit ?
2.ABC discount store has the following product line in its product line; toys, apparels, kitchenware, food, jewelry, furniture, health and fitness, consumer electronics, Giftware and Fashion Apparel.The annual demand of toys segment is 48000 units. The average lead time is 4 weeks. The standard deviation of demand during the average lead time is 75 units / week. The cost of ordering is Rs. 400 per order. The cost of purchase of the product is Rs. 10 per unit. The cost of carrying per unit per year is 15% of the purchase price. The maximum delay in lead time is 2 weeks and the probability of this delay is 0.25. Assume a service level of 0.95.
The average price per toy is Rs. 13. The minimum usage per week is 600 units and the minimum lead time is 3 weeks. The average usage per week is 900 units.
(a) Find out EOQ, Reorder level, Total Cost of inventory at EOQ, gross margin at EOQ and average inventory per year for toy category.
(b) Calculate the GMROI (gross margin return on investment) for toys category.
Expert Solution
1. Higher supplier costs
If the cost of goods sold gets higher, the profit margin profit margin decreases which in turn prevents the manager to maximize profit.
when suppliers try to increase their profit, cost of goods sold tend to increase which will reduce profits.
2) Lower prices
If the managers are forced to decrease selling price inorder to boost sales, profit margin will decrease.
The managers should be careful while offering discounts or lower rates as it will be difficult to increase prices once customers are used to get things at a lower price.
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