Ludo Case free essay sample

What is the optimal order quantity that Michelle Peach should use for Dado and for Wedo? What are the resulting expected profits? The optimal order quantities that Michelle Peach should use for Dado and for Wedo are 1,270 and 730. The gross margins and expected profits would be: The annual net income has considered that all the other costs as constant. We will write a custom essay sample on Ludo Case or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The advertising revenues are the same (fixed amount, not per unit ad amount). 2. Michelle finds out that Bobby Peru, a local recycler, is willing to pay a salvage value of â‚ ¬0. 05 for each left-over unit of Dado and â‚ ¬0. 7 for each left-over unit of Wedo. How would this change the optimal order quantity and the corresponding expected profit? Now that the left over units have a salvage value, the optimal order quantities for Dado and for Wedo are 1,322 and 753. The gross margins and expected profits would be: The annual net income has considered that all the other costs as constant. The advertising revenues are the same (no changes in Ad revenues) We recomputed the ad revenues considering a fixed ad revenue per unit sold and got the following profits: Question 1: $62,368Question 2: $73,333 We notice that for WEDO, the ad adjustment makes the new model less efficient. 3. (Optional) Frank Scherrer of Ink Inc. has recently acquired a new printing technology which makes processing much faster (with this technology, one can print individual units in a few minutes) but at a higher cost. As an important supplement to this technology, he also offers to upgrade the automatic vending machines so that they will be connected in real-time to the IT system of Ink Inc. This way, they can monitor the inventory status of the vending machines and virtually eliminate all unmet demand. For units printed this way, Frank will charge â‚ ¬0. 40 and â‚ ¬0. 95 for Dado and Wedo, respectively. (Frank will still charge â‚ ¬0. 25 and â‚ ¬0. 75 for quantities ordered the night before for Dado and Wedo, respectively. ) Qualitatively, how would this change the quantities ordered of Dado and Wedo the night ahead of publication? How would this affect profits? (You can also analyze this setting quantitatively. ) We would end up producing less overnight as we would have less incentive to capture the extra demand by preemptively printing. But then we would meet the extra demand by intraday printing. In rare occasions, we would still have spare copies. It seems that we could compute the forecast by setting the underage cost at 0. 15 (the difference between printing costs). We consider a salvage cost at 0 (anyway we shouldn’t have too much extra copies). We get a revenue of $58,901 ($100,998 with the ad adjustment). 4. (Optional) Should advertisement revenues be considered mainly as fixed or variable revenues? What impact would the two views have on questions 1-3 above? See results above. In theory she might try to get higher revenues from higher distribution. But in fact for a small local publication, it is likely that the company advertising won’t be able to afford more so she won’t realize the full potential. 5. (Optional) Should Michelle take Eskilds advice and have him carry out the newsvendor analysis as he propose? We just did it and it indeed allows Michelle to improve her profitability, so YES.