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

Exercise 22

Consider the PortaCom project discussed in Section 12.1.
a. An engineer on the product development team believes that first-year sales for the new printer will he 20,000 units. Using estimates of $45 per unit for the direct labor cost and $90 per unit for the parts cost, what is the first-year profit using the engineer's sales estimate?
b. The financial analyst on the product development team is more conservative, indicating that parts cost may well be $100 per unit. In addition, the analyst suggests that a sales volume of 10,000 units is more realistic. Using the most likely value of $45 per unit for the direct labor cost, what is the first-year profit using the financial analyst's estimates?
c. Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios such as those suggested by the engineer and the financial analyst?