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 $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: Procurement Cost ($) Probability Labor Cost ($) Probability Transportation Cost ($) Probability 10 0.25 20 0.10 3 0.75 11 0.45 22 0.25 5 0.25 12 0.30 24 0.35 25 0.30 Compute profit per unit for the base-case, worst-case, and best-case scenarios. Construct a simulation model to estimate the mean profit per unit. Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? 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.
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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 $45 per unit.
Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows:Procurement Cost ($)
Probability
Labor Cost ($)
Probability
Transportation Cost ($)
Probability
10
0.25
20
0.10
3
0.75
11
0.45
22
0.25
5
0.25
12
0.30
24
0.35
25
0.30
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Compute profit per unit for the base-case, worst-case, and best-case scenarios.
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Construct a simulation model to estimate the mean profit per unit.
-
Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios?
-
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.
-
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