As Christmas is getting closer Bronco store also need to place an order for Christmas decorations. Specifically you are planning to order high quality glass ornaments. These ornaments are hand blown and the process takes a long time so you cannot place another order until Christmas. Each of these ornaments cost $20 but you can sell them at $40. Because of the high interest rates you only keep the Christmas decorations until Christmas and then sell them all to an online outlet website for $5 apiece. Assume the demand for the ornaments has a continuous uniform distribution between 50 and 150.
If you want to stick with the CEO's stock out rule how many ornaments should you order before the season?
If you ignore the CEO's stock out rule how many ornaments should you order before the season?
After showing the result of your calculations to the CEO, she agrees that for these certain items you can relax the stock out rule. But she also emphasizes that these calculations have been achieved by ignoring the goodwill cost. She believes that since people prefer to do all of their Christmas shopping in one place, for every ornament that you are in shortage you will incur a cost of $15 in revenue of other items. Considering this cost, how many ornaments should you order before the season?
How high should the goodwill cost be so that the CEO's stock out rule holds?