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 $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows:
Procurement
Cost ($) Probability Labor Cost ($) Probability Transportation
Cost ($) Probability
10 0.25 20 0.1 3 0.75
11 0.45 22 0.25 5 0.25
12 0.3 24 0.35 25 0.3 (a) Compute profit per unit for base-case, worst-case, and best-case.
Profit per unit for base-case: $
Profit per unit for worst-case: $
Profit per unit for best-case:$
(b) Construct a simulation model to estimate the mean profit per unit.
If required, round your answer to the nearest cent.
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 that 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.
If required, round your answer to a one decimal digit percentage.