January 12, 2016

In this task, you are asked to conduct a small number of simulation trials. This task should be completed with manual calculations. Please be aware that the simulation results of such a small number of trials would not be sufficient for one to draw valid conclusions in a real situation. A large number of trials run on a computer would be necessary in order to arrive at a valid conclusion. Random numbers are provided in the attached template; these numbers are discrete, uniform, and between 1 and 100 inclusive.

Scenario:

Management has asked you to help estimate the average cost per unit to produce a new product so that they can project profits at different selling prices. You will conduct a Monte Carlo simulation for cost behavior using provided probabilistic data for the following cost estimates, which are provided in the attached worksheet: cost per unit for materials, labor, and utilities and their probability distributions. In your calculations, round to the nearest cent.

Requirements:

Use the random numbers in the exact sequence that they appear on the template for each cost.

A. Complete the attached (responses should include two decimal places) by doing the following:

1. Determine required unit costs correctly by doing the following:

a. Determine the average materials cost per unit.

b. Determine the average labor cost per unit.

c. Determine the average utilities cost per unit.

d. Determine the average total cost per unit.

2. Include the three random interval tables needed to correctly determine the costs from part A1.

a. Describe how you correctly used the random interval tables from part A2 to populate the spreadsheet.

B. Determine the selling price per unit that should be established for the new product using your simulation results.

1. Describe how you arrived at the selling price from part B.

Note: For your calculations in parts B and B1, assume that the company wants to realize an average markup of \$20 on each unit sold.

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