Benetton has entered a contract with a retailer for a seasonal product. The retailer’s sales price is $50 per unit of product. Benetton’s sales price to the retailers is $40 per unit. Any unsold units can be sold by the retailer to a third party at a salvage value of $34 per unit. The retailer forecasts demand to be normally distributed, with a mean of 9000 and a standard deviation of 1000 units. The retailer has ordered 9320 units. The expected lost sales ( under-stock) for this order is 260 units. Benetton’s production cost is $17 per unit. Hint: You do not need to use any formula to compute the expected under-stock. It has already been computed and provided to you.

a. Compute the expected profit for the retailer.

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A: $83920. B: $105840. C: $262989. D: $198372. E: $127418.

b. Compute the expected profit for Benetton.

A: $167140. B: $102640. C: $214360. D: $164968. E: $162384.


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