Problem 12-14 (Algorithmic) The management of Madeira Manufacturing Company is c
ID: 419492 • 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 $34,000. The variable cost for the product is uniformly distributed between $18 and $25 per unit. The product will sell for $54 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
First we must calculate the profit model for the product by subtracting revenue minus Variable cost then minus fixed costs.
We can let c represent the variable cost per unit and x represent the units demanded.
Profit=Revenue – Variable Costs - Fixed Costs
Revenue= $50 per unit
Variable costs= cx
Fixed costs= $30,000
Profit = 50x – cx – 30,000 = (50-c)x – 30,000
The profit model can be used to calculate the base-case, worst-case, and best-case analyses.
The base-case scenario determines the output given the most likely values for the probabilistic inputs of a model.
Mesne (pronounced "mean") profits are sums of money paid for the occupation of land to a person with right of immediate occupation, where no permission has been given for that occupation.[1][2] The concept is feudal in origin, and common in countries which rely on the English legal system (including many former British colonies).[2] The word is derived from the root word demesne.
Mesne profits commonly occur where a landlord has obtained an order from a court to evict a tenant, or where an individual sues to eject a bona fide landowner to whom title to landwas improperly conveyed. The mesne profit represents the value (living rent-free, profits earned from the land, etc.) the ejected tenant received from the property between the time the court ordered the eviction and the time when the tenant actually left the property. Mesne profits must be drawn from the land itself,[2] rather than improvements on it. For example, mesne profits may accrue from growing crops on land but would not generally accrue from a factory built on the land (unless there were damage to the land or improvements to the land itself such as the removal of stone from a field).[3]
A statute of limitations (usually six years) often limits the tenant-in-error's liability
# of units=624Sales @$50=$31,200=624 x 50Less Variable costs @$19.22=$11,993=624 x 19.22Contribution=$19,207=$31,200 - $11Less Fixed Costs$30,000Profit=-$10,793=$19,207 - $30
Simulation trials
Trial ## of units=Sales
Variablecost per unit
VariablecostContribution( Sales -VariableCosts
)Profit =Contribution -Fixed cost of $30,00011151
$57,55017.05
$19,625
$37,925
$7,925
respectively.
-Do ask if any doubt.
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