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.)
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ISBN:9780134753119
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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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VIEWStep 2: Construct the simulation model to estimate the mean profit per unit.
VIEWStep 3: Create a blank table with 1000 columns for conducting 1000 replications using data table.
VIEWStep 4: Explain why simulations to risk analysis is preferable to generating a variety of what-if scenarios.
VIEWStep 5: Determine the probability of profit per unit being less than $5.
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