Question

Billy Bob owns several hardware stores. In the fall of each year he must decide on the number of each type of sprinklers to order from his manufacturing supplier for the upcoming spring season. His cost for a particular type of sprinkler, the Triple-W Sprayer, is $115 and the retail selling price is $200. He estimates average sales of 50 Triple-W Sprayer but with considerable uncertainty, which he is willing to express as a uniform distribution between 35 and 65 Sprayers. Any Triple-W Sprayer not sold at the end of summer can be disposed of at cost (i.e. $115) to a discount warehouse. However, Billy Bob feels that on any such sprinkler he has lost money because of the capital tied up in the inventory for the whole season. He estimates a loss of $0.15 for every dollar tied up in a Triple-W Sprayer that must be sold off at the end of the season. How many Triple-W Sprayer should Billy Bob order?

Answer 1