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1 The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: Procurement Cost($) 10 11 12 Probability 0.25 0.45 0.30 Labor Cost ($) 20 22 24 25 Probability 0.10 0.25 0.35 0.30 Transportation Cost ($) 3 5 Probability 0.75 0.25 (a) Compute profit per unit for the base-case, worst-case, and best-case scenarios. Base Case using most likely costs Profit = $ /unit Worst Case Profit = $ /unit Best Case Profit = $ /unit (b) Construct a simulation model to estimate the mean profit per unit. (Use at least 1,000 trials.) (c) Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? Simulation will provide ---Select--- ✓of the profit per unit values which can then be used to find ---Select--- ✓of an unacceptably low profit. (d) Management believes the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability the profit per unit will be less than $5. (Round your answer to three decimal places.)

1 The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: Procurement Cost($) 10 11 12 Probability 0.25 0.45 0.30 Labor Cost ($) 20 22 24 25 Probability 0.10 0.25 0.35 0.30 Transportation Cost ($) 3 5 Probability 0.75 0.25 (a) Compute profit per unit for the base-case, worst-case, and best-case scenarios. Base Case using most likely costs Profit = $ /unit Worst Case Profit = $ /unit Best Case Profit = $ /unit (b) Construct a simulation model to estimate the mean profit per unit. (Use at least 1,000 trials.) (c) Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? Simulation will provide ---Select--- ✓of the profit per unit values which can then be used to find ---Select--- ✓of an unacceptably low profit. (d) Management believes the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability the profit per unit will be less than $5. (Round your answer to three decimal places.)

A First Course in Probability (10th Edition)
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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1 The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: Procurement Cost($) 10 $ 11 12 Probability 0.25 0.45 0.30 Labor Cost ($) 20 22 24 25 Probability 0.10 0.25 0.35 0.30 Transportation Cost ($) 3 5 (a) Compute profit per unit for the base-case, worst-case, and best-case scenarios. Base Case using most likely costs Profit = $ /unit /unit Worst Case Profit = $ Profit = $ Best Case /unit Probability 0.75 0.25 (b) Construct a simulation model to estimate the mean profit per unit. (Use at least 1,000 trials.) (c) Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? Simulation will provide ---Select--- ✓of the profit per unit values which can then be used to find ---Select--- of an unacceptably low profit. (d) Management believes the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability the profit per unit will be less than $5. (Round your answer to three decimal places.) SHOW WORK FOR (b) and (d) ON EXCEL SPREADSHEET.
Transcribed Image Text:1 The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: Procurement Cost($) 10 $ 11 12 Probability 0.25 0.45 0.30 Labor Cost ($) 20 22 24 25 Probability 0.10 0.25 0.35 0.30 Transportation Cost ($) 3 5 (a) Compute profit per unit for the base-case, worst-case, and best-case scenarios. Base Case using most likely costs Profit = $ /unit /unit Worst Case Profit = $ Profit = $ Best Case /unit Probability 0.75 0.25 (b) Construct a simulation model to estimate the mean profit per unit. (Use at least 1,000 trials.) (c) Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? Simulation will provide ---Select--- ✓of the profit per unit values which can then be used to find ---Select--- of an unacceptably low profit. (d) Management believes the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability the profit per unit will be less than $5. (Round your answer to three decimal places.) SHOW WORK FOR (b) and (d) ON EXCEL SPREADSHEET.
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