
Decision Making Model
Given:
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. Cost per unit for materials, labor, and utilities and their probability distributions are provided in the attached worksheet. In your calculations, round to the nearest cent.
Materials:
• The probability is .18 that the cost will be $33.
• The probability is .23 that the cost will be $35.
• The probability is .32 that the cost will be $38.
• The probability is .27 that the cost will be $39.
Labor:
• The probability is .12 that the cost will be $22.
• The probability is .18 that the cost will be $23.
• The probability is .22 that the cost will be $24.
• The probability is .28 that the cost will be $25.
• The probability is .20 that the cost will be $28.
Utilities:
• The probability is .26 that the cost will be $3.
• The probability is .43 that the cost will be $4.
• The probability is .31 that the cost will be $6.
Task:
A. Complete the attached “Simulation Template” to determine the following costs (responses should include two decimal places):
1. Average materials cost per unit
2. Average labor cost per unit
3. Average utilities cost per unit
4. Average total cost per unit
Note: Run 10 trials using the random numbers that are provided on the “Simulation Template” for each probability distribution. Use the random numbers in the exact sequence that they appear on the template for each cost.
Note: Submit your completed spreadsheet as an attachment to this task.
B. Determine the selling price per unit that should be established for this product using your simulation results and assuming that the company wants to realize an average markup of $20 on each unit sold.
          
  Materials    Labor    Utilities   Total 
 Random  Cost   Random  Cost   Random  Cost   Cost 
Trial  Number  per Unit   Number  per Unit   Number  per Unit   per Unit 
1  28    21    85    
2  14    50    64    
3  44    90    15    
4  51    71    66    
5  91    10    45    
6  38    11    74    
7  79    70    62    
8  70    16    18    
9  98    88    74    
10  11  ________   67  ________   35  ________   ________ 
Total           
          
Average           
          