Develop a worksheet simulation for the following problem.

The management of Madeira Manufacturing Comp

product. The fixed cost to begin the production of the product is $30,000. The variable cost for the product is
The product will sell for $50 per unit. Demand for the product is best described by a normal probability distrib
deviation of 300 units. Develop a spreadsheet simulation similar to Figure. Use 500 simulation trials to answe

a. What is the mean profit for the simulation?

b. What is the probability the project will result in a loss?
c. What is your recommendation concerning the introduction of the product?

Selling price per unit $50

Variable Cost (Uniform Distribution)

Smallest Value= $16
Largest Value= $24

Demand (Normal Distribution)

Mean= 1200
Standard Deviation= 300

Fixed Cost= $30,000

We will generate random numbers using Excel Worksheet function RAND

Random #
0.63948 =RAND()

To generate variable cost which follows a uniform distribution

To generate demand which follows a normal distribution

# of units= 624
Sales @ $50 = $31,200 =624 x 50
Less Variable costs @ $19.22 = $11,993 =624 x 19.22
Contribution= $19,207 =$31,200 - $11,993
Less Fixed Costs $30,000
Profit= -$10,793 =$19,207 - $30,000

Simulation trials

Trial # # of Sales Variable Variable Contribution Profit =

units= cost per cost ( Sales - Contribution -
unit Variable Fixed cost of $
Costs) 30,000
1 1151 $57,550 17.05 $19,625 $37,925 $7,925
 2 789 $39,450 16.58 $13,082 $26,368 -$3,632
3 1394 $69,700 20.25 $28,229 $41,471 $11,471
4 965 $48,250 19.18 $18,509 $29,741 -$259
5 1111 $55,550 16.44 $18,265 $37,285 $7,285
6 1377 $68,850 18.41 $25,351 $43,499 $13,499
7 1156 $57,800 16.15 $18,669 $39,131 $9,131
8 1012 $50,600 22.31 $22,578 $28,022 -$1,978
9 1327 $66,350 17.15 $22,758 $43,592 $13,592
10 1129 $56,450 20.31 $22,930 $33,520 $3,520
11 1429 $71,450 19.48 $27,837 $43,613 $13,613
12 1331 $66,550 19.7 $26,221 $40,329 $10,329
13 1257 $62,850 17.26 $21,696 $41,154 $11,154
14 1009 $50,450 19.85 $20,029 $30,421 $421
15 1213 $60,650 22.71 $27,547 $33,103 $3,103
16 943 $47,150 19.2 $18,106 $29,044 -$956
17 1279 $63,950 22.14 $28,317 $35,633 $5,633
18 1363 $68,150 16.23 $22,121 $46,029 $16,029
19 1339 $66,950 22.85 $30,596 $36,354 $6,354
20 1056 $52,800 18.47 $19,504 $33,296 $3,296
480 1183 $59,150 23.57 $27,883 $31,267 $1,267
481 1721 $86,050 18.84 $32,424 $53,626 $23,626
482 1099 $54,950 23.85 $26,211 $28,739 -$1,261
483 731 $36,550 21.9 $16,009 $20,541 -$9,459
484 1294 $64,700 22.96 $29,710 $34,990 $4,990
485 1547 $77,350 18.34 $28,372 $48,978 $18,978
486 729 $36,450 16.59 $12,094 $24,356 -$5,644
487 1506 $75,300 18.73 $28,207 $47,093 $17,093
488 857 $42,850 16.89 $14,475 $28,375 -$1,625
489 1002 $50,100 17.47 $17,505 $32,595 $2,595
490 840 $42,000 21.87 $18,371 $23,629 -$6,371
491 881 $44,050 23.12 $20,369 $23,681 -$6,319
492 1017 $50,850 17.3 $17,594 $33,256 $3,256
493 1127 $56,350 17.74 $19,993 $36,357 $6,357
494 1385 $69,250 22.75 $31,509 $37,741 $7,741
495 760 $38,000 16.47 $12,517 $25,483 -$4,517
496 1616 $80,800 21.67 $35,019 $45,781 $15,781
497 1316 $65,800 22.84 $30,057 $35,743 $5,743
498 1521 $76,050 20.47 $31,135 $44,915 $14,915
499 979 $48,950 21.98 $21,518 $27,432 -$2,568
500 604 $30,200 21.21 $12,811 $17,389 -$12,611

a. What is the mean profit for the simulation?

Mean profit = Average profit of the 500 trials= $6,852 =AVERAGE(H45:H544)

Calculated using Excel Worksheet function AVERAGE

b. What is the probability the project will result in a loss?

Number of losses= 119 =COUNTIF(H45:H544,"<0")
Total number of trials= 500
Therefore, probability of loss= 0.2380 =119/500

Number of losses counted using Excel worksheet function COUNTIF

c. What is your recommendation concerning the introduction of the product?

The project is profitable. (Average Profit is positive)

However, it is risky (About 1 in 4 chance that there would be a loss)
Introduce the product.
gement of Madeira Manufacturing Company is considering the introduction of a new
00. The variable cost for the product is uniformly distributed between $16 and $24 per unit.
escribed by a normal probability distribution with a mean of 1200 units and a standard
gure. Use 500 simulation trials to answer the following questions:

$19.22 =16 +( 24 - 16) x RAND()

624 =INT(NORMINV(RAND(),1200, 300))
(we have used INT because we want an integer value for demand)

=$31,200 - $11,993

=$19,207 - $30,000
 Note: Rows have been hidden using
Home->Cell->Format->Hide Rows

=AVERAGE(H45:H544)
oduct?