Question

In preparing for the upcoming holiday season, Fresh Toy Company (FTC) designed a new doll called The Dougie that teaches children how to dance. The fixed cost to produce the doll is $100,000. The variable cost, which includes material, labor, and shipping costs, is $34 per doll. During the holiday selling season, FTC will sell the dolls for $42 each. If FTC overproduces the dolls, the excess dolls will be sold in January through a distributor who has agreed to pay FTC $10 per doll. Demand for new toys during the holiday selling season is uncertain. The normal probability distribution with an average of 60,000 dolls and a standard deviation of 15,000 is assumed to be a good description of the demand. FTC has tentatively decided to produce 60,000 units (the same as average demand), but it wants to conduct an analysis regarding this production quantity before finalizing the decision.

(a)	Create a what-if spreadsheet model using formulas that relate the values of production quantity, demand, sales, revenue from sales, amount of surplus, revenue from sales of surplus, total cost, and net profit. What is the profit when demand is equal to its average (60,000 units)?
	$
(b)	Modeling demand as a normal random variable with a mean of 60,000 and a standard deviation of 15,000, simulate the sales of The Dougie doll using a production quantity of 60,000 units. What is the estimate of the average profit associated with the production quantity of 60,000 dolls? Round your answer in whole dollar.
	$
	How does this compare to the profit corresponding to the average demand (as computed in part a)?
	The input in the box below will not be graded, but may be reviewed and considered by your instructor.
(c)	Before making a final decision on the production quantity, management wants an analysis of a more aggressive 70,000-unit production quantity and a more conservative 50,000-unit production quantity. Run your simulation with these two production quantities. What is the average profit associated with each? Round your answer in whole dollar.
	When ordering 50,000 units, the average profit is approximately $   When ordering 70,000 units, the average profit is approximately $
(d)	Besides average profit, what other factors should FTC consider in determining a production quantity? Compare the four production quantities (40,000; 50,000; 60,000; and 70,000) using all these factors. What trade-offs occur?
	If required, round Probability of a Loss to three decimal places and Probability of a Shortage to two decimal places. Round your answer in whole dollar.
	Production Quantity Average Net Profit Profit Standard Deviation Maximum Net Profit Probability of a Loss Probability of a Shortage 40,000 $ $ $ 50,000 $ $ $ 60,000 $ $ $ 70,000 $ $ $

Answer 1

Answer :

a)Worksheet for - What is the profit when demand is equal to its average (60,000 units)?

enter the data firstly :

Mandrell toy company
Fixed production cost	$ 100,000
Unit variable cost	$ 34
Unit selling cost	$ 42
Unit surplus price	$ 10
Production quantity	$ 60,000
Normal distribution (Demand)
Mean	$ 60,000
Standard deviation	$ 15,000
Simulation trails
Trial	Demand	Sales	Sales reverse	Surplus	Surplus reverse	Total cost	Net profit

Therefore,

The cell formulas for the simulations trails are as below ;

Particulars	Description explanation
The cell under trail	Enter 1 for the first simulation trail.
The cell under demand	Simulate the damand normal distribution using the NORMINV and RAND function.
The cell under sales	The min of demand and product quantity
The cell under sales revenue	sales * Unit selling price
The cell under surplus	The surplus of production quantity over the demand
The cell under Surplus revenue	Surplus * unit surplus price
The cell under total cost	Fixed cost + Variable cost
The cell under net profit	sales revenue + surplus revenue - total cost

copy the cells for the principal trail down until 500 trails are produced.Note your qualities will be distinctive on the grounds that RAND picks an irregular number.The spreadsheet beneath has a greater part of the trails hidden.Use the AVERAGE capacity to locate the mean net benefit.

Mandrell toy company
Fixed production cost	$ 100,000
Unit variable cost	$ 34
Unit selling cost	$ 42
Unit surplus price	$ 10
Production quantity	$ 60,000
Normal distribution (Demand)
Mean	$ 60,000
Standard deviation	$ 15,000
Simulation trails
Trial	Demand	Sales	Sales reverse	Surplus	Surplus reverse	Total cost	Net profit
1	73,364	60,00	$ 2,520,000	0	0	$ 2,140,000	$ 3,80.000
2	25,636	25,636	1,076,712	34,364	343,640	2,140,000	719,648
3	49,615	49,615	2,083,830	10,385	103,850	2,140,000	47,680
499	63,018	60000	2520,000	0	0	2,140,000	380,000
500	72,040	60,000	2,520,000	0	0	2,140,000	380,000

Mean profit = $ 180,803

Standard deviation = $285,465.7

Max profit = - $ 1,129,600

Max profit = $ 380,000

By using these all simulation trails,We get the estimated mean profit = $ 180,803.

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