Develop a worksheet simulation for the following problem.
The management of Madeira Manufacturing Comp
product. The fixed cost to begin the production of the product is $30,000. The variable cost for the product is
The product will sell for $50 per unit. Demand for the product is best described by a normal probability distrib
deviation of 300 units. Develop a spreadsheet simulation similar to Figure. Use 500 simulation trials to answe
a. What is the mean profit for the simulation?
b. What is the probability the project will result in a loss?
c. What is your recommendation concerning the introduction of the product?
Selling price per unit
$50
Variable Cost (Uniform Distribution)
Smallest Value=
Largest Value=
$16
$24
Demand (Normal Distribution)
Mean=
Standard Deviation=
1200
300
Fixed Cost=
$30,000
We will generate random numbers using Excel Worksheet function RAND
Random #
0.63948 =RAND()
To generate variable cost which follows a uniform distribution
To generate demand which follows a normal distribution
# of units=
Sales @
Less Variable costs @
Contribution=
Less Fixed Costs
Profit=
624
$50 =
$19.22 =
$31,200
$11,993
$19,207
$30,000
-$10,793
=624 x 50
=624 x 19.22
=$31,200 - $11,993
=$19,207 - $30,000
Simulation trials
Trial #
# of
units=
1151
Sales
$57,550
Variable
cost per
unit
17.05
Variable
cost
Contribution
( Sales Variable
Costs)
$19,625
$37,925
Profit =
Contribution Fixed cost of $
30,000
$7,925
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
480
481
482
483
484
485
486
487
488
489
490
491
492
493
494
495
496
497
498
499
500
789
1394
965
1111
1377
1156
1012
1327
1129
1429
1331
1257
1009
1213
943
1279
1363
1339
1056
1183
1721
1099
731
1294
1547
729
1506
857
1002
840
881
1017
1127
1385
760
1616
1316
1521
979
604
$39,450
$69,700
$48,250
$55,550
$68,850
$57,800
$50,600
$66,350
$56,450
$71,450
$66,550
$62,850
$50,450
$60,650
$47,150
$63,950
$68,150
$66,950
$52,800
$59,150
$86,050
$54,950
$36,550
$64,700
$77,350
$36,450
$75,300
$42,850
$50,100
$42,000
$44,050
$50,850
$56,350
$69,250
$38,000
$80,800
$65,800
$76,050
$48,950
$30,200
16.58
20.25
19.18
16.44
18.41
16.15
22.31
17.15
20.31
19.48
19.7
17.26
19.85
22.71
19.2
22.14
16.23
22.85
18.47
23.57
18.84
23.85
21.9
22.96
18.34
16.59
18.73
16.89
17.47
21.87
23.12
17.3
17.74
22.75
16.47
21.67
22.84
20.47
21.98
21.21
$13,082
$28,229
$18,509
$18,265
$25,351
$18,669
$22,578
$22,758
$22,930
$27,837
$26,221
$21,696
$20,029
$27,547
$18,106
$28,317
$22,121
$30,596
$19,504
$27,883
$32,424
$26,211
$16,009
$29,710
$28,372
$12,094
$28,207
$14,475
$17,505
$18,371
$20,369
$17,594
$19,993
$31,509
$12,517
$35,019
$30,057
$31,135
$21,518
$12,811
$26,368
$41,471
$29,741
$37,285
$43,499
$39,131
$28,022
$43,592
$33,520
$43,613
$40,329
$41,154
$30,421
$33,103
$29,044
$35,633
$46,029
$36,354
$33,296
$31,267
$53,626
$28,739
$20,541
$34,990
$48,978
$24,356
$47,093
$28,375
$32,595
$23,629
$23,681
$33,256
$36,357
$37,741
$25,483
$45,781
$35,743
$44,915
$27,432
$17,389
-$3,632
$11,471
-$259
$7,285
$13,499
$9,131
-$1,978
$13,592
$3,520
$13,613
$10,329
$11,154
$421
$3,103
-$956
$5,633
$16,029
$6,354
$3,296
$1,267
$23,626
-$1,261
-$9,459
$4,990
$18,978
-$5,644
$17,093
-$1,625
$2,595
-$6,371
-$6,319
$3,256
$6,357
$7,741
-$4,517
$15,781
$5,743
$14,915
-$2,568
-$12,611
a. What is the mean profit for the simulation?
Mean profit = Average profit of the 500 trials=
Calculated using Excel Worksheet function AVERAGE
b. What is the probability the project will result in a loss?
$6,852 =AVERAGE(H45:H544)
Number of losses=
Total number of trials=
Therefore, probability of loss=
119 =COUNTIF(H45:H544,"<0")
500
0.2380 =119/500
Number of losses counted using Excel worksheet function COUNTIF
c. What is your recommendation concerning the introduction of the product?
The project is profitable. (Average Profit is positive)
However, it is risky (About 1 in 4 chance that there would be a loss)
Introduce the product.
gement of Madeira Manufacturing Company is considering the introduction of a new
00. The variable cost for the product is uniformly distributed between $16 and $24 per unit.
escribed by a normal probability distribution with a mean of 1200 units and a standard
gure. Use 500 simulation trials to answer the following questions:
$19.22 =16 +( 24 - 16) x RAND()
624 =INT(NORMINV(RAND(),1200, 300))
(we have used INT because we want an integer value for demand)
=$31,200 - $11,993
=$19,207 - $30,000
Note:
=AVERAGE(H45:H544)
Rows have been hidden using
Home->Cell->Format->Hide Rows
oduct?
