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The management of Madeira Computing is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The fixed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $128 and $192, with a most likely value of $160 per unit. The product will sell for $240 per unit. Demand for the product is expected to range from 0 to approximately 20,000 units, with 4,000 units the most likely. (a) Develop a what-if spreadsheet model computing profit for this product in the base-case, worst-case, and best-case scenarios.

The management of Madeira Computing is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The fixed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $128 and $192, with a most likely value of $160 per unit. The product will sell for $240 per unit. Demand for the product is expected to range from 0 to approximately 20,000 units, with 4,000 units the most likely. (a) Develop a what-if spreadsheet model computing profit for this product in the base-case, worst-case, and best-case scenarios.

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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(All answers were generated using 1,000 trials and native Excel functionality.) The management of Madeira Computing is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The fixed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $128 and $192, with a most likely value of $160 per unit. The product will sell for $240 per unit. Demand for the product is expected to range from 0 to approximately 20,000 units, with 4,000 units the most likely. (a) Develop a what-if spreadsheet model computing profit for this product in the base-case, worst-case, and best-case scenarios. If your answer is negative, use minus sign. Best-case profit Worst-case profit Base-case profit (b) Model the variable cost as a uniform random variable with a minimum of $128 and a maximum of $192. Model the product demand as 1,000 times the value of a gamma random variable with an alpha parameter of 3 and a beta parameter of 2. Construct a simulation model to estimate the average profit and the probability that the project will result in a loss. Round your answers to the nearest whole number. Average Profit Probability of a Loss (c) The average profit is fairly high Computing may not and the probability of a loss is greater want to launch the product if they have low risk tolerance. than 20%. Thus, Madeira
Transcribed Image Text:(All answers were generated using 1,000 trials and native Excel functionality.) The management of Madeira Computing is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The fixed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $128 and $192, with a most likely value of $160 per unit. The product will sell for $240 per unit. Demand for the product is expected to range from 0 to approximately 20,000 units, with 4,000 units the most likely. (a) Develop a what-if spreadsheet model computing profit for this product in the base-case, worst-case, and best-case scenarios. If your answer is negative, use minus sign. Best-case profit Worst-case profit Base-case profit (b) Model the variable cost as a uniform random variable with a minimum of $128 and a maximum of $192. Model the product demand as 1,000 times the value of a gamma random variable with an alpha parameter of 3 and a beta parameter of 2. Construct a simulation model to estimate the average profit and the probability that the project will result in a loss. Round your answers to the nearest whole number. Average Profit Probability of a Loss (c) The average profit is fairly high Computing may not and the probability of a loss is greater want to launch the product if they have low risk tolerance. than 20%. Thus, Madeira
(All answers were generated using 1,000 trials and native Excel functionality.) Galaxy Co. sells virtual reality (VR) goggles, particularly targeting customers who like to play video games. Galaxy procures each pair of goggles for $150 from its supplier and sells each pair of goggles for $300. Monthly demand for the VR goggles is a normal random variable with a mean of 120 units and a standard deviation of 30 units. At the beginning of each month, Galaxy orders enough goggles from its supplier to bring the inventory level up to 100 goggles. If the monthly demand is less than 100, Galaxy pays $20 per pair of goggles that remains in inventory at the end of the month. If the monthly demand exceeds 100, Galaxy sells only the 100 pairs of goggle in stock. Galaxy assigns a shortage cost of $40 for each unit of demand that is unsatisfied to represent a loss-of-goodwill among its customers. Management would like to use a simulation model to analyze this situation. (a) What is the average monthly profit resulting from its policy of stocking 100 pairs of goggles at the beginning of each month? Round your answer to the nearest dollar. (b) What is the proportion of months in which demand is completely satisfied? Round your answer to the nearest whole number. (c) use the simulation model to compare the profitability of monthly replenishment levels of 100 and 120 pairs of goggles. Use a 95% confidence interval on the difference between the average profit that each replenishment level generates to make your comparison. Round your answer to the nearest dollar. The average difference between the net profit generated by a replenishment level of 120 versus a replenishment level of 100 is $ It means, that mortthly replenishment level of increases profitability, 120
Transcribed Image Text:(All answers were generated using 1,000 trials and native Excel functionality.) Galaxy Co. sells virtual reality (VR) goggles, particularly targeting customers who like to play video games. Galaxy procures each pair of goggles for $150 from its supplier and sells each pair of goggles for $300. Monthly demand for the VR goggles is a normal random variable with a mean of 120 units and a standard deviation of 30 units. At the beginning of each month, Galaxy orders enough goggles from its supplier to bring the inventory level up to 100 goggles. If the monthly demand is less than 100, Galaxy pays $20 per pair of goggles that remains in inventory at the end of the month. If the monthly demand exceeds 100, Galaxy sells only the 100 pairs of goggle in stock. Galaxy assigns a shortage cost of $40 for each unit of demand that is unsatisfied to represent a loss-of-goodwill among its customers. Management would like to use a simulation model to analyze this situation. (a) What is the average monthly profit resulting from its policy of stocking 100 pairs of goggles at the beginning of each month? Round your answer to the nearest dollar. (b) What is the proportion of months in which demand is completely satisfied? Round your answer to the nearest whole number. (c) use the simulation model to compare the profitability of monthly replenishment levels of 100 and 120 pairs of goggles. Use a 95% confidence interval on the difference between the average profit that each replenishment level generates to make your comparison. Round your answer to the nearest dollar. The average difference between the net profit generated by a replenishment level of 120 versus a replenishment level of 100 is $ It means, that mortthly replenishment level of increases profitability, 120
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