Question

Problem 12-14 (Algorithmic)

The management of Madeira Manufacturing Company is considering the introduction of a new product. The fixed cost to begin the production of the product is $30,000. The variable cost for the product is uniformly distributed between $20 and $25 per unit. The product will sell for $55 per unit. Demand for the product is best described by a normal probability distribution with a mean of 1,200 units and a standard deviation of 200 units. Develop an Excel worksheet simulation for this problem. Use 500 simulation trials to answer the following questions:

What is the mean profit for the simulation? Round your answer to the nearest dollar.

Mean profit = $   

What is the probability that the project will result in a loss? Recalculate the numerical value of probability in percent and then round your answer to the nearest whole number.

Probability of Loss =  %

THE MEAN PROFIT IS NOT 6500 AND THE PROBABILITY OF LOSS IS NOT 30%!

Answer 1

Given that Total

The production of the product is $30,000.

The variable cost for the product is uniformly distributed between $20 and $25 per unit.

cost = Fixed Cost + Variable Cost As this table variable cost and demand values are simulated with the help of random number generation.

The product will sell for $55 per unit.

Profit = Revenue - Total Cost

Average Profit = $ 8612.70

Here total negative values are = 44

Probability that the project will be in loss = 44/500

= 8.8%

= 0.088 or 9% (approximately 9%)