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 $45 per unit.

Procurement Probability Labor Probability Transportation 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

a. Compute profit per unit for the base-case, worst-case, and best-case scenarios.

b. Construct a simulation model to estimate the mean profit per unit.

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

d. 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.

Answer 1

Step-by-step explanation:

Base on the scenario been described in the question, we use the following method to solve the given problem.

Step 1

Expected value of profit can be calculated by using formula: Selling price - Expected value of Procurement cost - Expected value of Labour cost - Expected value of Transportation cost

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Step 2

Expected value of Profit = $45 - $11.05- $23.4 - $3.5 = $ 7.05

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Step 3

Confidence Interval can be calculated by using the formula shown below

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