SIMULATION

2
Simulation is a mathematical technique which is used to predict the expected outcome when
several outcomes are possible. Simulation is a technique of estimating the possible future
outcomes or outcomes of various possible happenings.
Monte Carlo Simulation (MCS) is a technique of predicting the future events or estimating the
expected values objectively through a series of random numbers based trials. When we do not
know with certainty what the actual value will be, we base our decisions on the most likely
unbiased estimates. MCS is applied to find such estimates. The method involves using random
numbers and probability to estimate the expected values or to predict the future events.

Q1. A car rental agency has collected the following data on the demand for five-seater vehicles
over past 50 days.

Daily demand (No. of vehicle) 4 5 6 7 8

No. of days 4 10 16 14 6

The agency has only 6 cars currently. Use the following 5 random numbers to generate 5 days of
demand to the rental agency. Random number 15, 48, 71, 56, 90. What is the average number
of cars rented per day for 5 days?

Q2. [Study Material] A bakery keeps stock of popular brand of bread. Previous experience
indicates the daily demand as given below:
Daily Demand : 0 15 25 35 45 50
Probability :0.01 0.15 0.20 0.50 0.12 0.02
Consider the following sequence of random numbers:
48, 78, 09, 51, 56, 77, 15, 14, 68, 09

Using above sequence simulate the demand for the next 10 days.
(i) Find out the stock situation if owner of the bakery decides to make 35 breads everyday.
(ii) Estimates the daily average demand for the bread on the basis of simulated data.

CA-FINAL 2.1 CA. RAJ K AGRAWAL

OPERATIONS RESEARCH SIMULATION

Q3. A company manufactures 30 items per day. The sale of these items depends upon demand,
which has the following distribution:
Sales (Units) Probability
27 0.10
28 0.15
29 0.20
30 0.35
31 0.15
32 0.05
The production cost and sale price of each unit are ` 40 and ` 50 respectively. Any unsold
product is to be disposed off at a loss of ` 15 per unit. There is a penalty of ` 5 per unit if the
demand is not met. Using the following random numbers estimate total profit/ loss for the
company for the next 10 days: 10, 99, 65, 99, 95, 01, 79, 11, 16, 20.
If the company decides to produce 29 items per day, what is the advantage or disadvantage to
the company?

Q4. [Study Material] A company manufactures around 200 mopeds. Depending upon the
availability of raw materials and other conditions, the daily production has been varying from
196 mopeds to 204 mopeds, whose probability distribution is as given below:
Production per day Probability
196 0.05
197 0.09
198 0.12
199 0.14
200 0.20
201 0.15
202 0.11
203 0.08
204 0.06

The finished mopeds are transported in a specially designed three-storied lorry than can
accommodate only 200 mopeds. Using the following 15 random numbers 82, 89, 78, 24, 53, 61,
18, 45, 04, 23, 50, 77, 27, 54, 10. Simulate the process to find out:
(i) What will be the average number of mopeds waiting in the factory?
(ii) What will be the average number of empty spaces on the lorry?

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OPERATIONS RESEARCH SIMULATION

Q5. A refreshment centre in a railway station has two counters – (i) Self-service – opted by 60%
of the customers and (ii) attended service-opted by 40% of the customers. Both counters can
serve one person at a time. The arrival rate of the customers is given by the following
probability distributions.

No. of arrivals 1 3 4 0 2
Probability 0.10 0.30 0.05 0.20 0.35

Formulate the associated interval of 2 digit random numbers for generating (i) type of service
and (ii) arrival rate.

Q6. At a small store of readymade garments, there is one clerk at the counter who is to check
bills, receive payments and place the packed garments into fancy bags. The arrival of customer
at the store is random and service time varies from one minute to six minutes, the frequency
distribution for which is given below.
Time between Frequency Service Time Frequency
arrivals (minutes) (minutes)
1 5 1 1
2 20 2 2
3 35 3 4
4 25 4 2
5 10 5 1
6 5 6 0

The store starts work at 11 a.m. and closes at 12 noon for lunch and the customers are served
on the “first came first served basis. “Using Monte Carlo simulation technique, find average
waiting time and average service time.

You are given the following set of random numbers, first twenty for arrivals and last twenty for
service.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
64 04 02 70 03 60 16 18 36 38 07 08 59 53 01 62 36 27 97 86
30 75 38 24 57 09 12 18 65 25 11 79 61 77 10 16 55 52 59 63

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OPERATIONS RESEARCH SIMULATION

Q7. [Study Material] Dr. Preety is a dentist who schedules all her patients for 30 minutes
appointments. Some of the patients take more or less than 30 minutes depending on the type of
dental work to be done. The following summary shows the various categories of work, their
probabilities and the time actually needed to complete the work.

Category Time Required Probability of Category

Filling 45 minutes 0.40
Crown 60 minutes 0.15
Cleaning 15 minutes 0.15
Extraction 45 minutes 0.10
Check up 15 minutes 0.20

Simulate the dentist’s clinic for four hours and determine the average waiting time for the
patients as well as the idleness of the doctor. Assume that all the patients show up at the clinic
at exactly their scheduled arrival time starting at 8:00 am. Use the following random numbers
for handling the above problem: 40, 82, 11, 34, 25, 66, 17, 79

Q8. The management of ABC Company is considering the question of marketing a new product.
The fixed cost required in the project is ` 4,000. Three factors are uncertain, viz, the selling
price, variable cost and the annual sales volume. The product has a life of only one year. The
management has the data on these three factors as under:

Selling Price Probability Variable Cost Probability Sales Volume Probability

` ` (Units)
3 0.2 1 0.3 2,000 0.3
4 0.5 2 0.6 3,000 0.3
5 0.3 3 0.1 5,000 0.4

Consider the following sequence of thirty random numbers:

81, 32, 60, 04, 46, 31, 67, 25, 24, 10, 40, 02, 39, 68, 08, 59, 66, 90, 12, 64, 79, 31, 86,
68, 82, 89, 25, 11, 98, 16

Using the sequence (First 3 random numbers for the first trial etc) simulate the average profit
for the above project on the basis of 10 trials.

CA-FINAL 2.4 CA. RAJ K AGRAWAL

OPERATIONS RESEARCH SIMULATION

Q9. A doctor who has introduced an appointment system for daily consultations has derived the
following information regarding patient punctuality:
Minutes early 3 6%
2 29%
1 41%
On time 12%
Minutes late 1 7%
2 5%

The doctor times his consultations over a period, and derives the following frequency
distribution:
Minutes 12 10%
13 15%
14 28%
15 34%
16 13%

The doctor would like to issue first appointment at 8:00 am and subsequent appointment at 15
minute interval and wishes to have an idea of his idle time, the patient waiting time, and
whether he can complete his appointments on schedule.
Simulate sixteen consultations and derive the required information.
Given the following series of random numbers:
17, 14, 50, 40, 83, 13, 94, 08, 49, 98, 79, 51, 43, 74, 92, 24, 09, 21, 40, 12, 46, 91, 09, 05, 95, 44,
52, 79, 91, 53, 15, 16

Q10. A bookstore wishes to carry “Ramayana’ in stock. Demand is probabilistic and

replenishment of stock takes 2 days (i.e. if an order is placed on March 1, it will be delivered at
the end of the day on March 3). The probabilities of demand are given below:

Demand (daily) 0 1 2 3 4
Probability 0.05 0.10 0.30 0.45 0.10
Each time an order is placed, the store incurs an ordering cost of Rs10 per order. The store also
incurs a carrying cost of Rs0.50 per book per day. The inventory carrying cost is calculated on
the basis of stock at the end of each day.

The manager of the bookstore wishes to compare two options for his inventory decision.

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OPERATIONS RESEARCH SIMULATION
(i) Order 5 books when the inventory at the end of the day plus orders outstanding is less
than 8 books.
(ii) Order 8 books when the inventory at the end of the day plus orders outstanding is less
than 8 books.
Currently (beginning of 1st day) the store has a stock of 8 books plus 6 books ordered two days
ago and expected to arrive next day.

Using Monte Carlo Simulation for 10 cycles, recommend, which option the manager, should
choose.
The two digit random numbers are: 89, 34, 78, 63, 61, 81, 39, 16, 13, 73.

Q11. [Study Material] The occurrence of rain in a city on a day is dependent upon whether or
not it rained on the previous day. If it rained on the previous day, the rain distribution is given
by:
Event Probability
No rain 0.50
1 cm rain 0.25
2 cm rain 0.15
3 cm rain 0.05
4 cm rain 0.03
5 cm rain 0.02
If it did not rain the previous day, the rain distribution is given by:
Event Probability
No rain 0.75
1 cm rain 0.15
2 cm rain 0.06
3 cm rain 0.04

Simulate the city’s weather for 10 days and determine by simulation the total days without rain
as well as the total rainfall during the period.

Use the following random numbers for simulation:

67 63 39 55 29 78 70 06 78 76
Assume that for the first day of the simulation it had not rained the day before.

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OPERATIONS RESEARCH SIMULATION

Q12. [Study Material] The output of a production line is checked by an inspector for one or
more of three different types of defects called defects A, B and C. If defect A occurs, the item is
scrapped if defect B or C occur, the item must be reworked. The time required to rework a B
defect is 15 minutes and the time required to rework a C defect is 30 minutes. The probability of
an A, B and C defects are .15, .20 and .10 respectively.
For ten items coming off the assembly line, determine total number of items without any
defects , the number scrapped and the total minutes of rework time.

Use the following random numbers.

RN for defect A: 48 55 91 40 93 01 83 63 47 52
RN for defect B: 47 36 57 04 79 55 10 13 57 09
RN for defect C: 82 95 18 96 20 84 56 11 52 03

Q13. A single counter ticket booking centre employs one booking clerk. A passenger on arrival
immediately goes to the booking counter for being served if the counter is free. If, on the other
hand, the counter is engaged, the passenger will have to wait. The passengers are served on first
come first served basis. The time of arrival and the time of service varies from one minute to six
minutes. The distribution of arrival and service time is as under.

Arrival / Service Time (Minutes) Arrival (Probability) Service (Probability)

1 0.05 0.10
2 0.20 0.20
3 0.35 0.40
4 0.25 0.20
5 0.10 0.10
6 0.05 0

(i) Simulate the arrival and service of 10 passengers starting from 9 A.M. by using the
following random numbers in pairs respectively for arrival and service. Random numbers
60 09, 16 12, 08 18, 36 65, 38 25, 07 11, 08 79, 59 61, 53 77, 03 10.
(ii) Determine the total duration of:
(a) Idle time of booking clerk and (b) Waiting time of passengers.

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OPERATIONS RESEARCH SIMULATION

Q14. An international tourist company deals with the numerous personals calls each days and
prides itself on its level of service. The time to deal with each caller depends on the client’s
requirement which range from, say, a request for a brochure to booking a round-the –world
cruise. If a client’s has to wait for more the 10 minutes for attention, it is company’s policy for
the manger to see him personally and to give him a holiday voucher worth ` 15.
The company’s observations have shown that the time taken to deal with the clients and arrival
pattern of their calls follow the following distribution pattern:

Time to deal Minutes 2 4 6 10 14 20 30

with clients Probability 0.05 0.10 0.15 0.30 0.25 0.10 0.05
Time between Minutes 1 8 15 25
call arrivals Probability 0.2 0.4 0.3 0.1

Required
(i) Describe how you would stimulate the operation of the travel agency based on the use
of random number tables.
(ii) Simulate the arrival and serving of 12 clients and show the number of clients who
receive a voucher (Use line 1 of the random numbers below to derive the arrival pattern
and line 2 for the serving times); and
(iii) Calculate the weekly cost of voucher, assuming the proportion of clients receiving
vouchers derived from (ii) applies throughout a week of 75 operating hours.

Random numbers
Line 1 03 47 43 73 86 36 96 47 36 61 46 98
Line 2 63 71 62 33 26 16 80 45 60 11 14 10

Q15. XYZ Co. Ltd. evaluates the investment proposals on the basis of three factors: demand,
profit per unit and required amount of investment. The data for a proposal under the
consideration of its Board are given below:

Annual demand 20,000 30,000 40,000 45,000 50,000 55,000 70,000

(Kgs)
Probability 0.10 0.20 0.14 0.16 0.10 0.25 0.05

Profit per Kg. (`

`) 10 20 30 40 50 60 70
Probability 0.25 0.15 0.10 0.20 0.15 010 0.05

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OPERATIONS RESEARCH SIMULATION

Investment (`
`) 20,00,000 30,00,000 50,00,000
Probability 0.30 0.40 0.30

Using simulation process, repeat the trial 10 times, compute the ROI for each trial and the
average ROI. Use the following random numbers:
Demand 67, 63, 39, 55, 29, 78, 70, 06, 78, 76
Profit per unit 28, 57, 60, 17, 64, 20, 27, 58, 61, 30
Investment 76, 78, 06, 70, 78, 29, 55, 39, 63, 67

Ans15. Probability distribution (Demand)

Demand Probability Cum. Prob. Range for
simulation
20,000 0.10 0.10 0–9
30,000 0.20 0.30 10 –29
40,000 0.14 0.44 30 – 43
45,000 0.16 0.60 44 – 59
50,000 0.10 0.70 60 – 69
55,000 0.25 0.95 70 – 94
70,000 0.05 1.00 95 – 99

Probability distribution (Profit / Kg)

Profit / Kg. Probability Cum. Prob. Range for
simulation
10 0.25 0.25 0 – 24
20 0.15 0.40 25 – 39
30 0.10 0.50 40 –49
40 0.20 0.70 50 – 69
50 0.15 0.85 70 – 84
60 0.10 0.95 85 – 94
70 0.05 1.00 95 – 99

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OPERATIONS RESEARCH SIMULATION

Probability distribution (Investment)

Investment Probability Cum. Prob. Range for
simulation
20L 0.30 0.30 0 – 29
30L 0.40 0.70 30 – 69
50L 0.30 1.00 70 – 99

Statement showing ROCE under various trials

Trial Demand Profit per Kg. Investment ROCE
1 50,000 20 50L 20.00%
2 50.000 40 50L 40.00%
3 40,000 40 20L 80.00%
4 45,000 10 50L 9.00%
5 30,000 40 50L 24.00%
6 55,000 10 20L 27.50%
7 55,000 20 30L 36.67%
8 20,000 40 30L 26.67%
9 55,000 40 30L 73.33%
10 55,000 20 30L 36.67%
Average return on CE 37.38%

Q16. The Everalert Ltd, which has a satisfactory preventive maintenance system in its plant, has
installed a new How Air Generator based on electricity instead of fuel oil for drying the finished
products. The Hot Air Generator requires periodic shutdown maintenance. If the shutdown is
scheduled yearly, the cost of maintenance will be as under.
Maintenance cost ` 15,000 ` 20,000 ` 25,000
Probability 0.30 0.40 0.30

The cost are expected to be almost linear i.e. if the shutdown is scheduled twice per year, the
maintenance cost will be double.
The probability distribution of breakdown cost is estimated as under:
Breakdown costs per annum ` 75,000 ` 80,000 ` 1,00,000
Shutdown once a year 0.20 0.50 0.30
Shutdown twice a year 0.50 0.30 0.20

CA-FINAL 2.10 CA. RAJ K AGRAWAL

OPERATIONS RESEARCH SIMULATION

Stimulate the total costs – maintenance and breakdown – and recommend whether the
shutdown should be resorted once or twice a year.

Random numbers
Maintenance costs (shut down once a year) 27, 44, 22, 32, 97
Maintenance costs (shut down twice a year) 42, 04, 82, 38, 91
Breakdown costs (shut down once a year) 03, 50, 73, 87, 59
Breakdown costs (shut down twice a year) 54, 65, 49, 03, 56

Ans16. Probability Distribution (Maintenance cost)

Cost (`
`) Probability Cum. Probability Range Range for simulation
15,000 0.30 0.30 0 – 0.30 0 – 0.29
20,000 0.40 0.70 0.30 – 0.70 0.30 – 0.69
25,000 0.30 1.00 0.70 – 1.00 0.70 – 0.99

Probability Distribution (Breakdown cost; shutdown once a year)

Cost (`
`) Probability Cum. Probability Range Range for simulation
75,000 0.20 0.20 0 – 0.20 0 – 0.19
80,000 0.50 0.70 0.20 – 0.70 0.20 – 0.69
100,000 0.30 1.00 0.70 – 1.00 0.70 – 0.99

Probability Distribution (Breakdown cost; shutdown twice a year)

Cost (`
`) Probability Cum. Probability Range Range for simulation
75,000 0.50 0.50 0 – 0.50 0 – 0.49
80,000 0.30 0.80 0.50 – 0.80 0.50 – 0.79
100,000 0.20 1.00 0.80 – 1.00 0.80 – 0.99

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OPERATIONS RESEARCH SIMULATION

Shut down once a year

Maintenance cost p.a. Breakdown cost p.a.
15,000 75,000
20,000 80,000
15,000 1,00,000
20,000 1,00,000
25,000 80,000
Total ` 95,000 Total ` 4,35,000
Average ` 19,000 Average ` 87,000
Total cost ` 19,000 + ` 87,000 = ` 1,06,000

Shut down Twice a year

Maintenance cost p.a. Breakdown cost p.a.
20,000 × 2 80,000
15,000 × 2 80,000
25,000 × 2 75,000
20,000 × 2 75,000
25,000 × 2 80,000

Maintenance cost p.a. Breakdown cost p.a.

Total ` 2,10,000 Total ` 3,90,000
Average ` 42,000 Average ` 78,000
Total cost ` 42,000 + ` 78,000 = ` 1,20,000

Shutdown once a year is recommended on account of lower annual cost.

Q17. A retailer deals in a perishable commodity. The daily demand and supply are variable . The
data for the past 500 days show the following demand and supply.

Availability (Kg) Supply (No. of days) Demand (Kg.) Demand (No. of days)
10 40 10 50
20 50 20 110
30 190 30 200
40 150 40 100
50 70 50 40

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OPERATIONS RESEARCH SIMULATION
The retailer buys the commodity at ` 20 per kg. and sells at ` 30 per kg. Any commodity remains
at the end of the days, has no sales value. Moreover the loss on unsatisfied demand is ` 8 per
Kg. Given the following pair of random numbers, simulate 6 days sales, demand and profit: (31,
18) (63, 84) (15, 79) (07, 32) (43, 75) (81, 27).

The first random number in the pair is that of supply and the second random number is for
demand.

Ans17. Probability distribution (Supply)

Supply Probability Cum. Prob. Range Range for
simulation
10 40 / 500 = 0.08 0.08 0 – 0.08 0 – 0.07
20 50 / 500 = 0.10 0.18 0.08 – 0.18 0.08 – 0.17
30 190 / 500 = 0.38 0.56 0.18 – 0.56 0.18 – 0.55
40 150 / 500 = 0.30 0.86 0.56 – 0.86 0.56 – 0.85
50 70 / 500 = 0.14 1.00 0.86 – 1.00 0.86 – 0.99

Probability distribution (Demand)

Demand Probability Cum. Prob. Range Range for
simulation
10 40 / 500 = 0.10 0.10 0 – 0.10 0 – 0.09
20 110 / 500 = 0.22 0.32 0.10 – 0.32 1.10 – 0.31
30 200 / 500 = 0.40 0.72 0.32 – 0.72 0.32 – 0.71
40 100 / 500 = 0.20 0.92 0.72 – 0.92 0.72 – 0.91
50 40 / 500 = 0.08 1.00 0.92 – 1.00 0.92 – 0.99

Statement Showing Supply, Demand and Profit

Day Supply Demand Sale (i) Cost (ii) Loss on Profit / Loss
unsatisfied i – ii – iii
demand (iii)
1 30 20 600 600 - Nil
2 40 40 1,200 800 - 400
3 20 40 6000 400 160 40
4 10 30 300 200 160 -60
5 30 40 900 600 80 220
6 40 20 800 800 - -200
CA-FINAL 2.13 CA. RAJ K AGRAWAL
OPERATIONS RESEARCH SIMULATION

Q18. What are the steps involved in the simulation process?

Ans18. Steps in Simulation
(i) identify the problem which is to be stimulated
(ii) Develop the model
(iii) Select the computer system and develop the programme
(iv) Collect the data
(v) Perform simulation runs
(vi) Interpret and present the result
(vii) Recommend the further course of action

Q19. Outline the limitations of simulation

Ans19. Limitation of Simulation
(i) Simulation does not find an optimum solution to the problem; it is not an optimization
technique.
(ii) It can be quite expensive to build a simulation model.
(iii) The results of simulations are only reliable approximations.
(iv) The quality of the analysis depends on the quality of the model and the skill of the
modeler.
(v) Simulation results are sometimes hard to interpret.
(vi) Use of random numbers causes the results of the simulation to be slightly unreliable.
(This unreliability becomes smaller and smaller as the number of trials is increased).

Q20. An investment company wants to study the investment projects based on market demand
profit and the investment required, which are independent of each other. Following probability
distributions are estimated for each of these three factors.

Annual demand (units ‘000) 45 35 30 25 15 60 75

Probability 0.05 0.10 0.15 0.35 0.20 0.10 0.05

Profit per unit 5.00 6.00 8.00 7.00 12.00

Probability 0.10 0.30 0.25 0.25 0.10

Investment Required (in thousand of rupees) 4,000 3,200 3.500

Probability 0.20 0.45 0.35

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OPERATIONS RESEARCH SIMULATION

Using simulation process, repeat the time 10 times, compute the investment on each that taking
these factors into trial. What is the highest likely return? Use the following random numbers:

(30, 12, 16) (50, 09, 69) (63, 94, 26) (27, 08, 74)
(64, 60, 61) (28, 28, 72) (31, 23, 57) (54, 85, 20)
(64, 68, 18) (32, 31, 87)

In the bracket above the first random number is for annual demand, the second one is for profit
and the last one is for the investment required.

Ans 20. The yearly return can be determined by the formula:

Return (%) = Profit x units demanded x 100
Investment

First of all, random numbers 00 – 99 are allocated in proportion to the probabilities associated
with each of three variables as given under.

Annual Demand
Units in ‘000 Probability Cum. Probability Random number assigned
45 0.05 0.05 00-04
35 0.10 0.15 05-14
30 0.15 0.30 15-29
25 0.35 0.65 30-64
15 0.20 0.85 65-84
60 0.10 0.95 85-94
75 0.05 1.00 95-99

Profit per unit

Profit / Unit (`
`) Probability Cum. Probability Random number assigned
5.00 0.10 0.10 00-09
6.00 0.30 0.40 10-39
8.00 0.25 0.65 40-64
7.00 0.25 0.90 65-89
12.00 0.10 1.00 90-99

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OPERATIONS RESEARCH SIMULATION

Investment Required (in thousand of rupees)

Investment (`
`‘000) Probability Cum. Probability Random number assigned
4,000 0.20 0.20 00-19
3,200 0.45 0.65 20-64
3,500 0.35 1.00 65-99

Let us now simulate the process for 10 trials. The results of the simulation are shown in the
tables given below:

Trials Random Simulated Random Random Random Simulated Simulated

no. of demand no. of profit number investment retrun
demand (‘ 000) profit per unit for (`
`’ 000) (%)
units per unit (`
`) investment
1 30 25 12 6.00 16 4,000 3.75
2 50 25 09 5.00 69 3,500 3.57
3 63 25 94 12.00 26 3,200 9.38
4 27 30 08 5.00 74 3,500 4.29
5 64 25 60 8.00 61 3,200 6.25
6 28 30 28 6.00 72 3,500 5.14
7 31 25 23 6.00 57 3,200 4.69
8 54 25 85 7.00 20 3,200 5.47
9 64 25 68 7.00 18 4,000 4.38
10 32 25 31 6.00 87 3,500 4.29

The above table shows that the highest likely return is 9.38% which is corresponding to the
annual demand of 25,000 units resulting a profit of ` 12/- per unit and the required investment
will be ` 32,00,000

CA-FINAL 2.16 CA. RAJ K AGRAWAL