Question

Problem 12-03 (Algorithmic)

PortaCom manufactures notebook computers and related equipment. PortaCom's product design group developed a prototype for a new high-quality portable printer. The new printer features an innovative design and has the potential to capture a significant share of the portable printer market. Preliminary marketing and financial analyses provided the following selling price, first-year administrative cost, and first-year advertising cost:

Selling price	=	$249 per unit
Administrative cost	=	$400,000
Advertising cost	=	$600,000

In the simulation model for the PortaCom problem, the preceding values are constants and are referred to as parameters of the model.

The cost of direct labor, the cost of parts, and the first-year demand for the printer are not known with certainty and are considered probabilistic inputs. At this stage of the planning process, PortaCom’s best estimates of these inputs are $45 per unit for the direct labor cost, $90 per unit for the parts cost, and 15000 units for the first-year demand. The standard deviation of 4500 units describes the variability in the first-year demand. PortaCom would like an analysis of the first-year profit potential for the printer. Because of PortaCom’s tight cash flow situation, management is particularly concerned about the potential for a loss.

Following is the table of random number intervals for generating values of direct labor cost per unit.

Direct Labour Cost per Unit	Interval of Random Numbers
$43	0.0 but less than 0.1
$44	0.1 but less than 0.3
$45	0.3 but less than 0.7
$46	0.7 but less than 0.9
$47	0.9 but less than 1

The parts cost depends upon the general economy, the overall demand for parts, and the pricing policy of PortaCom’s parts suppliers. PortaCom believes that the parts cost will range from $80 to $100 per unit. Costs per unit between $80 and $100 are equally likely.

Use the random numbers 0.3753, 0.9218, 0.0336, 0.5145, and 0.7 to generate five simulated values for the PortaCom direct labor cost per unit. If required, round your answers to the nearest dollar.

Random Number	Direct Labor Cost
0.3753	$
0.9218	$
0.0336	$
0.5145	$
0.7	$

Use the random numbers 0.6221, 0.3418, 0.1402, 0.5198, and 0.9375 to generate five simulated values for the PortaCom parts cost. If required, round your answers to the nearest cent.

Random Number	Parts cost
0.6221	$
0.3418	$
0.1402	$
0.5198	$
0.9375	$

Use the random numbers 0.8531, 0.1762, 0.5, 0.681, and 0.2879 and the table for the cumulative standard normal distribution in Appendix B to generate five simulated values for the PortaCom first-year demand. If required, round your answers to the nearest unit.

Random Number	Demand
0.8531
0.1762
0.5
0.681
0.2879

Answer 1

Formulas:

Cell	Formula	Copy to
G12	=LOOKUP(F12,$B$12:$B$16,$A$12:$A$16)	G12:G16
I12	=ROUND(80+H12*(100-80),2)	I12:I16
K12	=ROUND(NORMINV(J12,15000,4500),0)	K12:K16
L12	=K12*($B$2-G12-I12)-$B$3-$B$4	L12:L16
L19	=AVERAGE(L12:L16)

Average profit = $ 707,921