The management of Brinkley Corporation is interested in using simulation to esti
ID: 2708923 • Letter: T
Question
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 $45 per unit.
Procurement Probability Labor Probability Transportation 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
a. Compute profit per unit for the base-case, worst-case, and best-case scenarios.
b. Construct a simulation model to estimate the mean profit per unit.
c. Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios?
d. Management believes the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability the profit per unit will be less than $5.
Explanation / Answer
answer a
Profit = Selling Price - Purchase Cost - Labor Cost - Transportation Cost
Base case = 45 - 11 - 24 - 3 => $ 7 / unit
worst case = 45 - 12 - 25 - 5 => $ 3 / unit
best case = 45 - 10 -20 - 3 => $ 12 / unit
answer b
answer c
Simulation approach to risk analysis preferable to generating a variety of what-if scenarios because a what- if Analysis involves generating values for the probabilistic inputs ( direct labour cost, parts cost, and first year demand and comtputing the resulting value for the profit. It is a trial and error approach to learning about th erange of possible outputs for a model. Trial values are choosen for the model input an dthe value of outputs i scomputed.
answer d
Simulation will provide a distribution of the profit per unit values. Calculating the percentage of simulation trials providing a profit less than $5 per unit would provide an estimate of the probability the profit per unit will be unacceptably low.
if purchase cost labour cost and transporattion cost will be 11, 12 or 24, 25 or 5 respectively tan in these cases profit will be less than 5
Purchase cost Interval Labour Cost Interval Transportation Cost Interval 10 0-24 20 0-9 3 0-74 11 25-69 22 10-34 5 75-100 12 70-100 24 35-69 25 70-100Related Questions
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