An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin

Exercise 18

The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. Probability distributions for the purchase cost, the labor cost, and the transportation cost are is follows:
Assume that these are the only costs and that the selling price for the product will be $45 per unit.
a. Provide the base-case, worst-case, and best-case calculations for the profit per unit.
b. Set up intervals of random numbers that can be used to randomly generate the three cost components.
c. Using the random numbers 0.3726, 0.5839, and 0.8275, calculate the profit per unit.
d. Using the random numbers 0.1862, 0.7466, and 0.6171, calculate the profit per unit.
e. Management believes the project may not be profitable if the profit per unit is less than $5. Explain how simulation can be used to estimate the probability the profit per unit will be less than $5.