Problem 12-14 (Algorithmic) The management of Madeira Manufacturing Company is c
ID: 2908767 • Letter: P
Question
Problem 12-14 (Algorithmic)
The management of Madeira Manufacturing Company is considering the introduction of a new product. The fixed cost to begin the production of the product is $30,000. The variable cost for the product is uniformly distributed between $20 and $25 per unit. The product will sell for $55 per unit. Demand for the product is best described by a normal probability distribution with a mean of 1,200 units and a standard deviation of 200 units. Develop an Excel worksheet simulation for this problem. Use 500 simulation trials to answer the following questions:
What is the mean profit for the simulation? Round your answer to the nearest dollar.
Mean profit = $
What is the probability that the project will result in a loss? Recalculate the numerical value of probability in percent and then round your answer to the nearest whole number.
Probability of Loss = %
What is your recommendation concerning the introduction of the product?
The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Explanation / Answer
Profit = Selling Price - Purchase Cost - Labor Cost - Transportation Cost Base Case using most likely costs Profit = 45 - 11 - 24 - 3 = $7/unit Worst Case Profit = 45 - 12 - 25 - 5 = $3/unit Best Case Profit = 45 - 10 - 20 - 3 = $12/unit