Case Study: Read Georges T-Shirts Beginning On Page 2

Section Case Study Read Georges T Shirts Beginning On Page 267 And

Read the case study about Georges T-Shirts and analyze the following questions: What are the possible financial outcomes if Lassiter orders 5,000, 7,500, or 10,000 T-shirts? How many T-shirts should Lassiter order?

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In analyzing the optimal production quantity for Georges T-Shirts, it is essential to evaluate the financial outcomes across different order levels—specifically, 5,000, 7,500, and 10,000 shirts—and determine the most financially viable decision. This evaluation involves considering the estimated sales, costs, potential leftovers, and revenue based on estimated demand and sales probabilities.

First, understanding the order costs at each level is crucial. The costs, based on the provided volume discounts, are \$17,750 for 5,000 shirts, \$25,250 for 7,500 shirts, and \$32,152 for 10,000 shirts. These costs represent the expenditure for producing the shirts, and the cost per shirt decreases with larger quantities, which is typical for bulk purchasing discounts. The subsequent step involves estimating expected sales, which depend heavily on attendance and the percentage of attendees buying shirts.

Estimating attendance involves considering the three scenarios: high (80,000), medium (50,000), and low (20,000) grandstand seats, with respective probabilities—though the high scenario is deemed slightly more probable in Lassiter's estimation. The percentage of attendees buying shirts averages around 10%, with variations between 5% and 15%. These sales estimates help project the expected sales volume at each attendance level, which in turn influences revenue and leftovers.

For instance, with 80,000 attendance, 10% sales would mean approximately 8,000 shirts sold, which exceeds the order quantity of 5,000 shirts, so sales would be capped at 5,000 shirts ordered—implying complete sales given sufficient demand. For a 50,000 attendance, 10% would be roughly 5,000 shirts—matching the order. If demand exceeds orders, sales are limited by supply; if demand is lower, unsold shirts are considered leftovers and sold at a discounted rate of \$1.50 per shirt to the discount clothing chain.

The expected revenue at each scenario considers both the sale of shirts at the event and the clearance sale of leftovers. Revenue from event sales equals the number of shirts sold (up to order quantity) multiplied by estimated market price (assumed to be \$10 per shirt). Leftover shirts are sold at \$1.50 each, providing some income if demand is less than the ordered quantity. Combining these factors with the probability of each scenario allows for calculation of the expected net income for each order quantity.

Having evaluated the financial outcomes, Lassiter should choose the order size that maximizes its expected profit, considering not only cost savings from larger volumes but also the risk of leftovers and unsold inventory. The analysis indicates that ordering 5,000 shirts strikes a prudent balance because it aligns with the estimated demand derived from typical attendance percentages, minimizes leftover risk, and leverages volume discounts without overcommitting to an uncertain demand.

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