menu
bartleby
search
close search
Hit Return to see all results
close solutoin list

A hardware company sells a lot of low-cost, high-volume products. For one such product, it is equally likely that annual unit sales will be low or high. If sales are low (30,000), the company can sell the product for $20 per unit. If sales are high (70,000), a competitor will enter and the company will be able to sell the product for only $15 per unit. The variable cost per unit has a 20% chance of being $10, a 60% chance of being $11, and a 20% chance of being $12. Annual fixed costs are $20,000. a. Use simulation to estimate the company’s expected annual profit. b. Find a 95% interval for the company’s annual profit, that is, an interval such that about 95% of the actual profits are inside it. c. Now suppose that annual unit sales, variable cost, and unit price are equal to their respective expected values—that is, there is no uncertainty. Determine the company’s annual profit for this scenario. d. Can you conclude from the results in parts a and c that the expected profit from a simulation is equal to the profit from the scenario where each input assumes its expected value? Explain.

BuyFindarrow_forward

Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659

Solutions

Chapter
Section
BuyFindarrow_forward

Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659
Chapter 10, Problem 32P
Textbook Problem
224 views

A hardware company sells a lot of low-cost, high-volume products. For one such product, it is equally likely that annual unit sales will be low or high. If sales are low (30,000), the company can sell the product for $20 per unit. If sales are high (70,000), a competitor will enter and the company will be able to sell the product for only $15 per unit. The variable cost per unit has a 20% chance of being $10, a 60% chance of being $11, and a 20% chance of being $12. Annual fixed costs are $20,000.

  1. a. Use simulation to estimate the company’s expected annual profit.
  2. b. Find a 95% interval for the company’s annual profit, that is, an interval such that about 95% of the actual profits are inside it.
  3. c. Now suppose that annual unit sales, variable cost, and unit price are equal to their respective expected values—that is, there is no uncertainty. Determine the company’s annual profit for this scenario.
  4. d. Can you conclude from the results in parts a and c that the expected profit from a simulation is equal to the profit from the scenario where each input assumes its expected value? Explain.

a)

Summary Introduction

To estimate: The expected annual profit of the firm.

Introduction: Simulation model is the digital prototype of the physical model that helps to forecast the performance of the system or model in the real world.

Explanation of Solution

Formulae to determine the above table:

b)

Summary Introduction

To determine: The 95 percent interval for the annual profit of the company.

Introduction: Simulation model is the digital prototype of the physical model that helps to forecast the performance of the system or model in the real world.

c)

Summary Introduction

To determine: The annual profit of the firm for the given scenario.

Introduction: Simulation model is the digital prototype of the physical model that helps to forecast the performance of the system or model in the real world.

d)

Summary Introduction

To conclude: The results from part (a) and part (c).

Introduction: Simulation model is the digital prototype of the physical model that helps to forecast the performance of the system or model in the real world.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Chapter 10 Solutions

Practical Management Science
Show all chapter solutions
add
Ch. 10.4 - In the Walton Bookstore example, suppose that...Ch. 10.4 - A sweatshirt supplier is trying to decide how many...Ch. 10.4 - In the Walton Bookstore example with a discrete...Ch. 10.5 - If you add several normally distributed random...Ch. 10.5 - In Problem 11 from the previous section, we stated...Ch. 10.5 - Continuing the previous problem, assume, as in...Ch. 10.5 - In Problem 12 of the previous section, suppose...Ch. 10.5 - Use @RISK to analyze the sweatshirt situation in...Ch. 10.5 - Although the normal distribution is a reasonable...Ch. 10.6 - When you use @RISKs correlation feature to...Ch. 10.6 - When you use @RISKs correlation feature to...Ch. 10.6 - Repeat Problem 23, but now make the second input...Ch. 10.6 - The Business School at State University currently...Ch. 10 - Six months before its annual convention, the...Ch. 10 - You have made it to the final round of the show...Ch. 10 - A new edition of a very popular textbook will be...Ch. 10 - A hardware company sells a lot of low-cost,...Ch. 10 - W. L. Brown, a direct marketer of womens clothing,...Ch. 10 - Assume that all of a companys job applicants must...Ch. 10 - Lemingtons is trying to determine how many Jean...Ch. 10 - Dilberts Department Store is trying to determine...Ch. 10 - It is surprising (but true) that if 23 people are...Ch. 10 - A Flexible Savings Account (FSA) plan allows you...Ch. 10 - At the beginning of each week, a machine is in one...Ch. 10 - Simulation can be used to illustrate a number of...Ch. 10 - In statistics we often use observed data to test a...Ch. 10 - You are making several runs of a simulation model,...Ch. 10 - If you want to replicate the results of a...Ch. 10 - Suppose you simulate a gambling situation where...Ch. 10 - You plan to simulate a portfolio of investments...Ch. 10 - Big Hit Video must determine how many copies of a...Ch. 10 - Many people who are involved in a small auto...Ch. 10 - A building contains 1000 lightbulbs. Each bulb...Ch. 10 - Why is the RISKCORRMAT function necessary? How...Ch. 10 - Consider the claim that normally distributed...Ch. 10 - It is very possible that when you use a...Ch. 10 - When you use a RISKSIMTABLE function for a...Ch. 10 - Consider a situation where there is a cost that is...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions add
Identify all items that are debited or credited to Social Security Tax Payable and to Medicare Tax Payable.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

How can report writers decide what type of graphic to use in a report?

Essentials of Business Communication (MindTap Course List)

SALES INCREASE Pierce Furnishings generated 2 million in sales during 2014, and its year-end total assets were ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)