Terrapin Resources

# Decision Level 2

## Situation

At the beginning of Caps all of the companies were equal. What is the situation now after your first decision?

• Check your inventory. If you had many caps left over from last week, you should consider lowering your price. If you had orders you could not fill, you should consider raising your price.

• Study the competition. How does your price compare to the prices of your competitors? What do you need to do to win a larger share of the market? This week you will be able to adjust price and cap orders. If you raise your price, fewer customers will want to buy your caps. If you lower price, you may be able to sell more caps than you did last week. Remember, selling more caps does not always mean more profits if you are only making a small profit on each cap you sell!

Your price will help establish the demand you receive for your caps. Be sure you make an order decision that will give you the right supply.

## Calculation

ORDERING A NEW SUPPLY OF CAPS

One of the most important decisions managers must make is, “How many caps should I order?” If you order more caps than you can sell, you will increase costs and reduce profits. If you don’t order enough caps, you might lose sales to other companies and lose the opportunity to make more profit.

DEMAND
1. How many caps did you sell last week?
2. With no price change, how many caps can you expect to sell this week?
3. With your new price, how many caps do you expect to sell?
SUPPLY
4. What is your inventory of caps? -
5. Subtract inventory from expected sales to calculate supply needed =
6. Divide by the number of caps per box +
7. Boxes to order to fill expected demand

Caps can only be ordered in complete boxes to obtain the wholesale price. Is it better to have a few left over or not to have enough if you guess wrong about the demand?

## Decisions

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