Question

1. Problem 16-01

   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. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows:

   Procurement Cost ($)	Probability	Labor Cost ($)	Probability	Transportation Cost ($)	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

   1. Compute profit per unit for the base-case, worst-case, and best-case.
      
      Profit per unit for the base-case: $  
      
      Profit per unit for the worst-case: $  
      
      Profit per unit for the best-case: $  
      
   2. Construct a simulation model to estimate the mean profit per unit. If required, round your answer to the nearest cent.
      
      Mean profit per unit = $  
      
   3. Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios?
      
      The input in the box below will not be graded, but may be reviewed and considered by your instructor.
      
      
      
   4. 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. If required, round your answer to two decimal places.
      
      %

Answer 1

(0+ lo Cost 3 5 0.75 0-25 Solution @ Given that Procurement Probability Labor Probability Transportation Prok Cost 0.25 20 0.10 0.45 22 0.25 | 12 :0.30 24 10.35 - 250.30 Profit = (selling Price)-furchase cost) - Llabor cost) (Transportation cost) Il Base case - 45-11-24-3 = $7/ unit worst case = 45-12-25-3 = $3/ unit | best case = 45 -10-20-3 = $12/unit Cost cost Part ② - Purchase interval Labour interval Transportation interval I cost lo 0-24 20 0-9 3 0-74 25-69 82 10-34 5 75-100 T 12 70-100 24 35 -69 25 70100 Part) A risk analysis approach can create different scenarios for what if the analysis involves ! creating value for possible resources direct labour cost, parts cost, and first year demand and a computing the resulting value of the profit). Trial and error method of learning what possible outcomes for a sample the semble values are selected for the model input and the output Ivalues.

Part d- The simulation will provide a profit distribution per unit cost. Calculating the percentage of experimental trials yielding less than $5 per unit will estimate the probability of unacceptable unit #profits "If labour cost and transportation costs were 11, 12 or 24, 25 or 5 respectively, the profit will be less than 5