Problem 12-01
The management of Brinkley Corporation is interested in usingsimulation to estimate the profit per unit for a new product. Theselling price for the product will be $45 per unit. Probabilitydistributions for the purchase cost, the labor cost, and thetransportation cost are estimated as follows:
Procurement
Cost ($) |
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, andbest-case scenarios.
Profit per unit for the base-case: $
Profit per unit for the worst-case: $
Profit per unit for the best-case: $
- Construct a simulation model to estimate the mean profit perunit. If required, round your answer to the nearest cent.
Mean profit per unit = $
- Why is the simulation approach to risk analysis preferable togenerating a variety of what-if scenarios?
The input in the box below will not be graded, but may be reviewedand considered by your instructor.
- Management believes the project may not be sustainable if theprofit per unit is less than $5. Use simulation to estimate theprobability the profit per unit will be less than $5. If required,round your answer to two decimal places.
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