The management at XYZ Corporation needs to know the profit per unit sold of a ne
ID: 2647565 • Letter: T
Question
The management at XYZ Corporation needs to know the profit per unit sold of a new product. The new product is priced to sell for $45 per unit. The costs incurred in brining this new product to market are for production, labor, and transportation. Probability distributions for the purchase cost, labor cost, and transportation cost (all on a per unit basis) are as follows:
Probability
Note: Profit= Selling Price - Purchase Cost - Labor Cost - Transportation Cost
1. Calculate and state the calculated profit per unit for the:
a. base-case using the most likely task completion times.
b. best-case
c. worst-case
Probability
Cost ($) Cost ($) Cost ($) 10 .25 20 .10 3 .75 11 .45 22 .25 5 .25 12 .30 24 .35 25 .30Explanation / Answer
Our Selling price is fixed at $45.
a) Base-Case:
Our objective is to find the most likely scenario.
Purchase Cost: .25*10+.45*11+.30*12= 11.05
Here we will consider purchase cost as $11.05
Labor Cost: .10*20+.25*22+.35*24+.30*25= 23.4
Here we will consider purchase cost as $23.4.
Transportation Cost: .75*3+.25*5=3.5
Here we will consider purchase cost as $3.5
Profit= Selling Price- Purchase Cost- Labor Cost- Transportation Cost
Profit per unit= 45-11.05-23.4-3.5= $7.05
b) Best-Case:
Our objective is to find the scenario with maximum profit per unit. As Selling Price is fixed at $45, so we are looking
to minimize cost.
Purchase Cost: Minimum Cost for purchase cost is $10.
Labor Cost: Minimum Cost for labor cost is 20.
Transportation Cost: Minimum Cost for transportation cost is 3.
Profit= Selling Price- Purchase Cost- Labor Cost- Transportation Cost
Profit per unit= 45-10-20-3= $12
c) Worst-Case:
Our objective is to find the scenario with minimum profit per unit. As Selling Price is fixed at $45, so we are looking
to maximize cost.
Purchase Cost: Maximum Cost for purchase cost is $12.
Labor Cost: Maximum Cost for labor cost is 25.
Transportation Cost: Maximum Cost for transportation cost is 5.
Profit= Selling Price- Purchase Cost- Labor Cost- Transportation Cost
Profit per unit= 45-12-25-5= $3
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