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Problem 12-01
(Algorithmic)
PortaCom manufactures
notebook computers and related equipment. PortaCom's product design
group developed a prototype for a new high-quality portable
printer. The new printer features an innovative design and has the
potential to capture a significant share of the portable printer
market. Preliminary marketing and financial analyses provided the
following selling price, first-year administrative cost, and
first-year advertising cost:
Selling price |
= |
$258 per unit |
Administrative cost |
= |
$350,000 |
Advertising cost |
= |
$550,000 |
In the simulation
model for the PortaCom problem, the preceding values are constants
and are referred to as parameters of the model.
- An engineer on the product development team believes that
first-year sales for the new printer will be 19,500 units. Using
estimates of $50 per unit for the direct labor cost and $87 per
unit for the parts cost, what is the first-year profit using the
engineer's sales estimate?
$
- The financial analyst on the product development team is more
conservative, indicating that parts cost may well be $103 per unit.
In addition, the analyst suggests that a sales volume of 9,000
units is more realistic. Using the most likely value of $50 per
unit for the direct labor cost, what is the first-year profit using
the financial analyst's estimates?
$
- Why is the simulation approach to risk analysis preferable to
generating a variety of what-if scenarios such as those suggested
by the engineer and the financial analyst?
A simulation provide probability information about the various
profit levels whereas a what-if analysis provide probability
information about the various profit outcomes.
Check My Work2 more Check My Work uses remaining.