(All answers generated on the Analytic Solver Platform using 10,000 trials and r
ID: 3221134 • Letter: #
Question
(All answers generated on the Analytic Solver Platform using 10,000 trials and random seed 1994.) 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 expected to be between $16 and $24, with a most likely value of $20 per unit. The product will sell for $50 per unit. Demand for the product is expected to range from 300 to 2,100 units, with 1,200 units the most likely.
(a) Develop a what-if spreadsheet model computing profit for this product in the basecase, worst-case, and best-case scenarios. If your answer is negative, use minus sign.
Profit per unit for best-case $
Profit per unit for worst-case
Profit per unit for base-case $
(b) Discuss why simulation would be appropriate for this situation. Would simulation be a preferable approach to analyze this situation? Why or why not? The input in the box below will not be graded, but may be reviewed and considered by your instructor. blank
Explanation / Answer
a) Intutively, best case is when the unit cost is least and demand the maximum. Worst case happens for max unit cost and the least demand.
BaseCase (Most Likely) - Variable cost 20, Price - $50, Demand - 1200
Profit = Sales - Total Cost
= Demand*Price/Unit - (Fixed + Variable Cost)
= 1200*50 - (30,000 + 1200*20)
= 60,000 - 54,000 = $6000
Profit/Unit = 6000/1200 = $5
BestCase: Cost - 16, Demand 2100
Profit/Unit = 50 - (30,000/2100 +16)
= 50 - 30.29 = $19.71
WorstCase: Cost = $24, Demand = 300
Profit/Unit = 50 - (30,000/300 +24)
= -$74
b) Simulation is absolutely the right way to analyze the situation. Since variable cost and demand have a range, model them as probability distributions. Without loss of generality, both can follow Uniform. By running 10,000 trials, no assumptions about the cost and demand are made. The outcome would then be an expected profit.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.