Homework Answers
Profit = Sales - variable cost - fixed cost
Let c = variable cost per unit and X = demand.
a)
Thus, the profit model is as follows
Profit = Sales - variable cost - fixed cost
Profit = $35X - cX - $27,000
b)
Base case- Demand will be 1500 units and variable cost per unit = $19
Substituting the values in the profit model, we get
Profit = $35 * 1500 - $19 * 1500 - $27,000
Profit = $52,500 - $28,500 - $27,000
Profit = -$3,000
Best case- Demand will be 2000 units and variable cost per unit = $16
Substituting the values in the profit model, we get
Profit = $35 * 2000 - $16 * 2000 - $27,000
Profit = $70,000 - $32,000 - $27,000
Profit = $11,000
Worst case- Demand will be 700 units and variable cost per unit = $22
Substituting the values in the profit model, we get
Profit = $35 * 700 - $22 * 700 - $27,000
Profit = $24,500 - $15,400 - $27,000
Profit = -$17,900
Thus, there is a loss of $17,900
Que 2:
Ans:
- Given,selling price = $50 per unit.
- Also Variable cost per unit is uniformly distributed between $16 to $24. (Let it be denoted by VC)
- The demand is a Normal distribution .
- Mean of Normal distribution is 1200 units and a standard deviation SD of 300 units. (Let it be denoted by SD).
- Fixed cost(FC) = $30,000.
- Profit = SD(50 – VC) – 30,000
a) Using 500 simulation trials, formula used are displayed below:
Mean profit of the simulation:Profit for 500 simulation Trials
From the Summary Statistics , Mean profit is $5519.46
b) The probability that the project will lead to a loss,
The probability that the project will lead to a loss is 0.294
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