Question

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 $55 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows:

Procurement Cost ($) Probability
11 0.25
12 0.35
13 0.40

Labor Cost ($) Probability
22 0.15
24 0.25
25 0.35

Transportation Cost ($) Probability
4 0.65
5 0.35
27 0.25

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: $______

Construct a simulation model to estimate the mean profit per unit. If required, round your answer to the nearest cent.

Mean profit per unit = $______

Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios?

The simulation approach to risk analysis is preferable because ______.

Management believes the project may not be sustainable if the profit per unit is less than $11. Use simulation to estimate the probability the profit per unit will be less than $11. If required, round your answer to one decimal place.

Probability the profit per unit will be less than $11: ______

Answer 1

Brinkley Corporation needs to assess the profitability of a new product using simulation modeling, considering different scenarios and distributions of costs to estimate profit per unit and the probability of profits being lower than $11. Without running the simulation with the given data, exact profitability metrics or probabilities cannot be provided.

Step-by-step explanation:

The management of Brinkley Corporation wants to use simulation to predict the profit per unit for a new product priced at $55. To compute profit per unit, we need to consider the base-case, worst-case, and best-case scenarios based on the costs and their probabilities provided. Unfortunately, without additional context or computational results, it is not possible to provide specific dollar amounts for the profit per unit in these scenarios.

In the base-case scenario, we would typically use the most probable costs; for the worst-case scenario, we would use the highest costs, and for the best-case scenario, the lowest costs. To create a simulation model, we would run many iterations, each time randomly selecting costs based on their probabilities, to estimate the mean profit per unit. The simulation approach to risk analysis allows for a more comprehensive understanding of potential outcomes compared to static what-if scenarios because it accounts for variability and the probability of different cost combinations.

To estimate the probability that profit per unit will be less than $11, the simulation would be used to see how often this event occurs across many iterations. Nonetheless, providing an exact probability estimate requires performing the actual simulation with the given cost distributions.