12 Jul COMPARE REVENUE SHARING AND BUY-BACK (RETURN) CONTRACTS
Please see the attachement with 6 questions Document Preview: Page 1 of 4 Question 1 Chime-A-Verse (CAV) is a Taiwanese manufacturer of custom alarm clocks that recite verses as wake-up call. CAV is the sole supplier for Vazood-E-Muhammad (VEM), a Saudi retailer who sells alarm clocks reciting verses from Holy Quran to visitors in Mecca during the month of Ramadan. VEM must order these upscale designer clocks from CAV several months in advance. At the time of ordering the demand is uncertain and is estimated to be Normally distributed with a mean and standard deviation of 1000 and 300, respectively. VEM buys each clock at a wholesale price of 50 Riyals and sells it at a retail price of 100 Riyals. Excess clocks are sold at a discount price of 20 Riyals each after Id-ul-Fitr, the end of the Ramadan season. CAV spends Taiwan $280(30 Riyals) to manufacturer and ship a clock to Mecca. a) How many clocks should VEM buy in anticipation of Ramadan? b) Do you believe that the current wholesale price of 50 Riyals maximizes the expected profit for CAV? If not, what wholesale price would you recommend? c) Is there a wholesale price that can accomplish channel coordination? Why (or why not)? A channel with independent retailer and manufacturer is said to be coordinated if the total expected profit for manufacturer and retailer is the same as that for a vertically integrated channel. Assume that a vertically integrated channel has the same manufacturing and retailing efficiency as independent manufacturer and retailer. Assume also that the salvage value of a clock is the same (20 Riyals) regardless of who salvages it. Question 2 When is allowing return not a good idea? Give reasons and example(s) to support your viewpoint. Question 3 Compare Revenue Sharing and Buy-back (Return) contracts on the following dimensions Revenue Sharing Contract Buy-back (Return) Contract Potential for Channel Coordination Easy to enforce? Advantage to manufacturer (compared to a fixed wholesale price offer) Page 2 of 4 Advantage to retailer (compared to a… Attachments: HomeWork5.pdf
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