Essentials of Business Analytics 1st Edition by Jeffrey Camm,James Cochran,Michael Fry,Jeffrey Ohlmann ,David Anderson

Exercise 6

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:

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