(16-01, I 16-05, I 16-09, I 16-13, I 16-15, I 16-11, I 16-03, I 16-07)
Problem I 16-01
The Imanagement I of IBrinkley ICorporation Iis Iinterested Iin Iusing Isimulation Ito Iestimate Ithe Iprofit I per
Iunit Ifor Ia Inew Iproduct. IThe Iselling Iprice Ifor Ithe Iproduct Iwill Ibe I$45 Iper Iunit. IProbability Idistributions Ifor
Ithe Ipurchase Icost, Ithe Ilabor Icost, Iand Ithe Itransportation Icost I are Iestimated I as Ifollows:
Transportatio
Procurement
Probabilit Probabilit In Probabilit
ICost I($) Labor ICost I($)
Iy Iy Cost I($) Iy
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 I profit I per Iunit Ifor I the I base-case, I worst-case, Iand I best-case.
Profit Iper Iunit Ifor Ithe Ibase-case: I$
Profit Iper Iunit Ifor Ithe Iworst-case: I$
Profit Iper Iunit Ifor Ithe I best-case: I$
b. Construct Ia Isimulation Imodel Ito Iestimate I the Imean Iprofit I per Iunit. IIf Irequired, Iround IyourIanswer
Ito Ithe Inearest Icent.
Mean Iprofit Iper Iunit I=I$ 7.05
c. Why Iis Ithe Isimulation Iapproach Ito Irisk Ianalysis Ipreferable Ito Igenerating Ia Ivariety Iof Iwhat-if
Iscenarios?
The Iinput Iin Ithe Ibox Ibelow Iwill Inot Ibe Igraded, Ibut Imay Ibe Ireviewed Iand Iconsidered Iby Iyour Iinstructor.
d. Management I believes Ithe Iproject Imay Inot I be Isustainable Iif Ithe I profit I per Iunit Iis Iless Ithan I$5.IUse
I simulation Ito Iestimate Ithe Iprobability Ithe Iprofit Iper Iunit Iwill Ibe Iless Ithan I$5. IIf Irequired, Iround Iyour
I answer Ito Itwo I decimal I places.
8.5 %
, Problem I 16-11 I(Algorithmic)
In Ipreparing Ifor Ithe Iupcoming Iholiday I season, IFresh IToy ICompany I(FTC) Idesigned Ia Inew Idoll Icalled
ITheI Dougie Ithat Iteaches Ichildren Ihow Ito I dance. I The Ifixed Icost Ito Iproduce I the I doll Iis I$100,000. IThe
Ivariable Icost, Iwhich Iincludes Imaterial, Ilabor, Iand Ishipping Icosts, Iis I$34 I per Idoll. IDuring Ithe Iholiday
Iselling Iseason, IFTC Iwill Isell Ithe Idolls Ifor I$42 Ieach. IIf IFTC Ioverproduces Ithe Idolls, Ithe Iexcess Idolls Iwill
Ibe Isold Iin IJanuary Ithrough Ia Idistributor Iwho Ihas Iagreed Ito Ipay IFTC I$10 Iper Idoll. IDemand Ifor Inew Itoys
Iduring Ithe Iholiday I selling Iseason Iis Iextremely Iuncertain. IForecasts Iare Ifor Iexpected Isales I of I60,000
Idolls Iwith Ia Istandard Ideviation Iof I15,000. IThe Inormal Iprobability Idistribution Iis Iassumed Ito Ibe Ia Igood
Idescription Iof Ithe Idemand. IFTC Ihas Itentatively Idecided Ito Iproduce I60,000 Iunits I(the Isame Ias Iaverage
Idemand), I but Iit Iwants Ito Iconduct Ian Ianalysis Iregarding Ithis Iproduction Iquantity I before Ifinalizing Ithe
Idecision.
a. Create Ia Iwhat-if Ispreadsheet Imodel Iusing Ia Iformula Ithat Irelate Ithe Ivalues Iof Iproduction
Iquantity, Idemand, Isales, Irevenue Ifrom Isales, Iamount Iof Isurplus, Irevenue Ifrom Isales Iof Isurplus,
ItotalI cost, Iand Inet Iprofit. IWhat Iis Ithe Iprofit Icorresponding Ito Iaverage Idemand I(60,000 Iunits)?
$ 380000
b. Modeling Idemand Ias Ia Inormal Irandom Ivariable Iwith I a Imean I of I60,000 Iand Ia Istandard
Ideviation Iof I15,000, Isimulate Ithe Isales Iof Ithe IDougie Idoll Iusing Ia Iproduction Iquantity I of I60,000
Iunits. IWhat Iis Ithe Iestimate Iof Ithe Iaverage Iprofit Iassociated Iwith Ithe Iproduction Iquantity Iof I60,000
Idolls? IRound Iyour Ianswer Ito Ithe Inearest Idollar.
$ 188512
HowIdoes Ithis Icompare ItoIthe Iprofit Icorresponding Ito Ithe Iaverage Idemand I(as Icomputed Iin Ipart I(a))?
Average I profit Iis less Ithan the Iprofit Icorresponding Ito Iaverage Idemand.
c. Before Imaking Ia Ifinal Idecision Ion Ithe Iproduction Iquantity,Imanagement Iwants Ian Ianalysis I of Ia
Imore Iaggressive I70,000-unit Iproduction I quantity Iand Ia Imore Iconservative I50,000-unit Iproduction
Iquantity. IRun Iyour I simulation Iwith Ithese Itwo Iproduction Iquantities. I What Iis Ithe Imean Iprofit
Iassociated Iwith Ieach? IRound Iyour Ianswers Ito Ithe Inearest Idollar.
50,000-unit I production I quantity: I $ 227471
70,000-unit I production I quantity: I$ 67450
d. In Iaddition Ito Imean Iprofit, I what Iother I factors Ishould IFTC Iconsider Iin I determining Ia
I productionIquantity?
The Iinput Iin Ithe Ibox Ibelow Iwill Inot Ibe Igraded, Ibut Imay Ibe Ireviewed Iand Iconsidered Iby Iyour Iinstructor.
Compare Ithe Ithree Iproduction Iquantities I(50,000, I60,000, Iand I 70,000) Iusing Iall Ithese Ifactors.
IWhat Itrade-offs Ioccur? I Round Iyour Ianswers Ito I3 I decimal Iplaces.
50,000 Iunits: 0.748
Problem I 16-01
The Imanagement I of IBrinkley ICorporation Iis Iinterested Iin Iusing Isimulation Ito Iestimate Ithe Iprofit I per
Iunit Ifor Ia Inew Iproduct. IThe Iselling Iprice Ifor Ithe Iproduct Iwill Ibe I$45 Iper Iunit. IProbability Idistributions Ifor
Ithe Ipurchase Icost, Ithe Ilabor Icost, Iand Ithe Itransportation Icost I are Iestimated I as Ifollows:
Transportatio
Procurement
Probabilit Probabilit In Probabilit
ICost I($) Labor ICost I($)
Iy Iy Cost I($) Iy
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 I profit I per Iunit Ifor I the I base-case, I worst-case, Iand I best-case.
Profit Iper Iunit Ifor Ithe Ibase-case: I$
Profit Iper Iunit Ifor Ithe Iworst-case: I$
Profit Iper Iunit Ifor Ithe I best-case: I$
b. Construct Ia Isimulation Imodel Ito Iestimate I the Imean Iprofit I per Iunit. IIf Irequired, Iround IyourIanswer
Ito Ithe Inearest Icent.
Mean Iprofit Iper Iunit I=I$ 7.05
c. Why Iis Ithe Isimulation Iapproach Ito Irisk Ianalysis Ipreferable Ito Igenerating Ia Ivariety Iof Iwhat-if
Iscenarios?
The Iinput Iin Ithe Ibox Ibelow Iwill Inot Ibe Igraded, Ibut Imay Ibe Ireviewed Iand Iconsidered Iby Iyour Iinstructor.
d. Management I believes Ithe Iproject Imay Inot I be Isustainable Iif Ithe I profit I per Iunit Iis Iless Ithan I$5.IUse
I simulation Ito Iestimate Ithe Iprobability Ithe Iprofit Iper Iunit Iwill Ibe Iless Ithan I$5. IIf Irequired, Iround Iyour
I answer Ito Itwo I decimal I places.
8.5 %
, Problem I 16-11 I(Algorithmic)
In Ipreparing Ifor Ithe Iupcoming Iholiday I season, IFresh IToy ICompany I(FTC) Idesigned Ia Inew Idoll Icalled
ITheI Dougie Ithat Iteaches Ichildren Ihow Ito I dance. I The Ifixed Icost Ito Iproduce I the I doll Iis I$100,000. IThe
Ivariable Icost, Iwhich Iincludes Imaterial, Ilabor, Iand Ishipping Icosts, Iis I$34 I per Idoll. IDuring Ithe Iholiday
Iselling Iseason, IFTC Iwill Isell Ithe Idolls Ifor I$42 Ieach. IIf IFTC Ioverproduces Ithe Idolls, Ithe Iexcess Idolls Iwill
Ibe Isold Iin IJanuary Ithrough Ia Idistributor Iwho Ihas Iagreed Ito Ipay IFTC I$10 Iper Idoll. IDemand Ifor Inew Itoys
Iduring Ithe Iholiday I selling Iseason Iis Iextremely Iuncertain. IForecasts Iare Ifor Iexpected Isales I of I60,000
Idolls Iwith Ia Istandard Ideviation Iof I15,000. IThe Inormal Iprobability Idistribution Iis Iassumed Ito Ibe Ia Igood
Idescription Iof Ithe Idemand. IFTC Ihas Itentatively Idecided Ito Iproduce I60,000 Iunits I(the Isame Ias Iaverage
Idemand), I but Iit Iwants Ito Iconduct Ian Ianalysis Iregarding Ithis Iproduction Iquantity I before Ifinalizing Ithe
Idecision.
a. Create Ia Iwhat-if Ispreadsheet Imodel Iusing Ia Iformula Ithat Irelate Ithe Ivalues Iof Iproduction
Iquantity, Idemand, Isales, Irevenue Ifrom Isales, Iamount Iof Isurplus, Irevenue Ifrom Isales Iof Isurplus,
ItotalI cost, Iand Inet Iprofit. IWhat Iis Ithe Iprofit Icorresponding Ito Iaverage Idemand I(60,000 Iunits)?
$ 380000
b. Modeling Idemand Ias Ia Inormal Irandom Ivariable Iwith I a Imean I of I60,000 Iand Ia Istandard
Ideviation Iof I15,000, Isimulate Ithe Isales Iof Ithe IDougie Idoll Iusing Ia Iproduction Iquantity I of I60,000
Iunits. IWhat Iis Ithe Iestimate Iof Ithe Iaverage Iprofit Iassociated Iwith Ithe Iproduction Iquantity Iof I60,000
Idolls? IRound Iyour Ianswer Ito Ithe Inearest Idollar.
$ 188512
HowIdoes Ithis Icompare ItoIthe Iprofit Icorresponding Ito Ithe Iaverage Idemand I(as Icomputed Iin Ipart I(a))?
Average I profit Iis less Ithan the Iprofit Icorresponding Ito Iaverage Idemand.
c. Before Imaking Ia Ifinal Idecision Ion Ithe Iproduction Iquantity,Imanagement Iwants Ian Ianalysis I of Ia
Imore Iaggressive I70,000-unit Iproduction I quantity Iand Ia Imore Iconservative I50,000-unit Iproduction
Iquantity. IRun Iyour I simulation Iwith Ithese Itwo Iproduction Iquantities. I What Iis Ithe Imean Iprofit
Iassociated Iwith Ieach? IRound Iyour Ianswers Ito Ithe Inearest Idollar.
50,000-unit I production I quantity: I $ 227471
70,000-unit I production I quantity: I$ 67450
d. In Iaddition Ito Imean Iprofit, I what Iother I factors Ishould IFTC Iconsider Iin I determining Ia
I productionIquantity?
The Iinput Iin Ithe Ibox Ibelow Iwill Inot Ibe Igraded, Ibut Imay Ibe Ireviewed Iand Iconsidered Iby Iyour Iinstructor.
Compare Ithe Ithree Iproduction Iquantities I(50,000, I60,000, Iand I 70,000) Iusing Iall Ithese Ifactors.
IWhat Itrade-offs Ioccur? I Round Iyour Ianswers Ito I3 I decimal Iplaces.
50,000 Iunits: 0.748
