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PortaCom manufactures notebook computers and related equipment. PortaCom's product design group developed a prptotype for a new high-quality portable printer. The new printer features an innovative design and has the potential to capture a significant share of the portable printer market. Preliminary marketing and financial analyses provided the following selling price, first-year administrative cost, and first-year advertising cost Selling price $249 per unit Administrative cost $400,000 Advertising cost $600,000 In the simulation model for the PortaCom problem, the preceding values are constants and are referred to as parameters of the model. The cost of direct lebor, the cost of parts, and the first-yeer demand for the printer are not known with certainty and are considered probabilistic inputs. At this stage of the planning process, PortaCom's best estimates of these inputs are $45 per unit for the direct labor cost, $90 per unit for the parts cost, and 16500 units for the first- year demand. The standard deviation of 5500 units describes the variability in the first-year demand. PortaCom would like an analysis of the first-year profit potential for the printer. Because of PortaCom's tight cash flow situation, management is particularly concerned about the potential for a loss Pollowlng is the table of random number intervals for generating values of direct labor cost per unit. Direct Labour Cost Interval of Random per Unit $43 $44 $45 $40 $47 Numbers 0.0 but less than 0.1 0.1 but less than 0.3 0.3 but less than 0.7 0.7 but less than 0.9 0.9 but less than 1

Explanation / Answer

b.
As the part costs per unit between $85 and $100 are equally likely. Parts costs ~ Uniform(85, 100)
By cumulative uniform distribution, parts costs can be calculated as,

Random number = (x - 85) / (100 - 85) where x is the part costs
=> x = Random number * (100 - 85) + 85

=> x = Random number * 15 + 85

c.

Let us assume the best estimate first year demand as the mean of first year demand. Mean = 16500. The standard deviation of first year demand is 5500.

For each random numbers, we find z value using cumulative standard normal distribution,

z value for 0.7821 is 0.7793

z value for 0.1551 is -1.0148

z value for 0.5181 is 0.0454

z value for 0.6732 is 0.4488

z value for 0.2989 is -0.5276

We know that z value for standard normal distributution is,

z = (First year demand - mean)/ Standard deviation

=> First year demand = z * 5500 + 16500

z values are 0.7793, -1.0148, 0.0454, 0.4488, -0.5276

Random Number Parts Cost 0.6394 94.59 0.3493 90.24 0.231 88.47 0.4996 92.49 0.8958 98.44

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