Question

Problem 14-1

(All answers were generated using 1,000 trials and native Excel functionality.)

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 $55 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
11	0.25	22	0.15	4	0.65
12	0.35	24	0.25	5	0.35
13	0.4	25	0.35
		27	0.25

(a)	Compute profit per unit for base-case, worst-case, and best-case.
	Profit per unit for base-case: $
	Profit per unit for worst-case: $
	Profit per unit for best-case: $
(b)	Construct a simulation model to estimate the mean profit per unit.
	If required, round your answer to the nearest cent.
	Mean profit per unit = $
(c)	Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios?
	The input in the box below will not be graded, but may be reviewed and considered by your instructor.
(d)	Management believes that the project may not be sustainable if the profit per unit is less than $11. Use simulation to estimate the probability the profit per unit will be less than $11.
	If required, round your answer to a one decimal digit percentage.
	%

Answer 1