Assume that the operations manager of a small semi-conductor manufacturerwants to run a Simulation model to better understand the uncertainties related tocost and demand for a particular product. He assumes that the total cost per monthcould be anywhere between $150,000 and $200,000 with equal likelihood. He alsoassumes that the demand is normally distributed with a mean of 5,000 items permonth and a standard deviation of 1,000. Each item is sold for $95.a) Use the random numbers in the following table to simulate the costs, revenuesand profits per month. Use Random Number A to generate the costs and RandomNumber B to generate the revenues per month and then calculate the profit as thedifference between revenues and costs. Complete the table by reporting theminimum, maximum and average profit per month according to this simulation.Trial12345678910youb) CanRandom A0.23you0.040.140.070.030.670.260.030.830.32CostRandom B0.750.890.820.330.960.670.460.260.160.75RevenuesMinimum:Maximum:Average:Note that I generated the random numbers for you (independently of each other).So,don't have to use the "=RAND()" function.think of a major flaw in this simulation model?Profit

We have to undertake random number based simulation on costs, demand, revenue and profits. The…

Answered: Assume that the operations manager of a…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

ChapterMB: Model-building Problems

Section: Chapter Questions

Problem 18M

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Develop a worksheet simulation for the following problem: The management of Montemayor 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 ₱16 and ₱24 per unit. The product will sell for ₱50 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 300 units. Develop a spreadsheet simulation similar to the one provided previously. Use 500 simulation trials to answer the following questions. What is the mean profit for the simulation? What is the probability that the project will result in a loss? What is your recommendation concerning the introduction of the product?
Sinbo Electronics is trying to reduce supply chain risk by making more responsible make-buy decisions through improved cost estimation. A high-use component can be purchased for $25 per unit with delivery promised within a week. Alternatively, Sinbo can make the component in-house and have it readily available at a material cost of $3 per unit if equipment costing $155,000 is purchased. Labor and other operating costs are estimated to be $45,000 per year over the study period of 5 years. Salvage is estimated at 10% of the first cost, and the interest rate is 10% per year. Which one of the following values is closest to the break-even quantity? Select one: а. 3,789 b. 3,158 с. 6,341 d. 4,404 e. 11,160
The annual demand for a particular chemical product is 1,200 units. Suppose that the annualholding cost is $24 per unit, and the ordering cost is $100.Part A: Find the optimal order quantity based on EOQ analysis, and calculate the combinedannual ordering and holding cost.Part B: Now suppose that the store manager finds out that the demand has been underestimated.Specifically, the correct annual demand is 1,500 units. On the other hand, due to operationalrestrictions she cannot change the order quantity and thus use the same order size from part A.How much this error cost the store? (This can also be considered as a penalty for parametermisestimation).
A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is six months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.20 and that of high demand to be 0.80. The after-tax NPV of the benefits from purchasing two machines together is $70,000 if demand is low and $170,000 if demand is high. If one machine is purchased and demand is low, the NPV is $100,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $100,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $120,000. What is the best decision and what is its expected payoff? Best decision is to buy nothing…
A manager has the option of purchasing 1, 2, or 3 machines. The computed VC is 10perunitandrevenueperunitis40. FC and potential volumes are as follows: # of Machines Fixed Cost Range of Output 1 $ 9,600 0-300 2 15,000 301-600 3 20,000 601-900 a. Determine the BEP of each range using the formula. b. If the annual demand is between 580 to 660 units, how many machines should the manager purchased?
Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?
The Lockit Company manufactures door knobs for residential homes and apartments. Lockit is considering the use of simple (single-driver) and multiple regression analyses to forecast annual sales because previous forecasts have been inaccurate. The new sales forecast will be used to initiate the budgeting process and to identify more completely the underlying process that generates sales. Larry Husky, the controller of Lockit, has considered many possible independent variables and equations to predict sales and has narrowed his choices to four equations. Husky used annual observations from 20 prior years to estimate each of the four equations. Following are definitions of the variables used in the four equations and a statistical summary of these equations: St=ForecastedsalesindollarsforLockitinperiodtSt1=ActualsalesindollarsforLockitinperiodt1Gt=ForecastedU.S.grossdomesticproductinperiodtGt1=ActualU.S.grossdomesticproductinperiodt1Nt1=Lockitsnetincomeinperiodt1 Required: 1. Write Equations 2 and 4 in the form Y = a + bx. 2. If actual sales are 1,500,000 in the current year, what would be the forecasted sales for Lockit in the coming year? 3. Explain why Larry Husky might prefer Equation 3 to Equation 2. 4. Explain the advantages and disadvantages of using Equation 4 to forecast sales.
Jensen Tire Auto is deciding whether to purchase a maintenance contract for its new computer wheel alignment and balancing machine. Managers feel that maintenance expense should be related to usage, and they collected the following information on weekly usage (hours) and annual maintenance expense (in hundreds of dollars). a. Develop a scatter chart with weekly usage hours as the independent variable. What does the scatter chart indicate about the relationship between weekly usage and annual maintenance expense? b. Use the data to develop an estimated regression equation that could be used to predict the annual maintenance expense for a given number of hours of weekly usage. What is the estimated regression model? c. Test whether each of the regression parameters 0 and 1 is equal to zero at a 0.05 level of significance. What are the correct interpretations of the estimated regression parameters? Are these interpretations reasonable? d. How much of the variation in the sample values of annual maintenance expense does the model you estimated in part (b) explain? e. If the maintenance contract costs 3,000 per year, would you recommend purchasing it? Why or why not?
An industrial firm uses economic analysis to determine which of two different machines to purchase. Each machine is capable. Each machine is capable of performing the same task in a given amount of time. Assume the MARR=8%. Use the following data for analysis:Which, if either of the two machines should the firm choose?
A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is 6 months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.30 and that of high demand to be 0.70. The after-tax NPV of the benefits from purchasing two machines together is $90,000 if demand is low and $170,000 if demand is high. If one machine is purchased and demand is low, the NPV is $120,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $120,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $130,000. a. Draw a decision tree for this problem. b. What is the best decision and what is its expected payoff?
An industrial firm uses economic analysis to determine which of two different machines to purchase. Each machine is capable. Each machine is capable of performing the same task in a given amount of time. Assume the MARR=8%. Use the following data for analysis:What is the approximate equivalent uniform annual cost of Machine X?
Assume that you are the team leader of strategic planning and advisory board of M/S XYZ company. The company has decided to enter the market with a new electronic product. Your team conducted a marker research and presented the following two strategies along with the necessary data. Strategy A: Build a large plant with an estimated cost of 20,00,000 Rials. This alternative can face two states of nature on market conditions: High demand with a probability of 0.70, or a low demand with a probability of 0.30. If the demand is high, the company can expect to receive an annual revenue of 5,00,000 Rials for 7 years. If the demand were low the annual revenue would be only 1,00,000 Rials.

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