The management of Madeira Manufacturing Company is considering the introduction

Question

The management of Madeira Manufacturing Company is considering the introduction of a new product. The fixed cost to begin the production of the product is $25,000. The variable cost for the product is expected to be between $16 and $28 with a most likely value of $21 per unit. The product will sell for $55 per unit. Demand for the product is expected to range from 500 to 1600 units, with 1000 units the most likely demand. Let c = variable cost per unit x = demand Develop the profit model for this product. Enter your answer in the form of an expression. (Example: (c+10)x+800) Profit = Provide the base-case, worst-case and best-case analyses. For those boxes in which you must enter subtractive or negative numbers use a minus sign. (Example: -300) Base case: Profit = $ Worst case: Profit = $ Best case: Profit = $ Discuss why simulation would be desirable. A simulation provides the probability of each scenario.

Explanation / Answer

Profit model = (55-c)*x-25000

For variable cost as $16 and fluctuating demand,

For variable cost as $17 and fluctuating demand,  

For variable cost as $18 and fluctuating demand,  

And s

Demand SP VC C Profit 500 55 16 39 -5500 (worst case) 600 55 16 39 -1600 700 55 16 39 2300 800 55 16 39 6200 900 55 16 39 10100 1000 55 16 39 14000 1100 55 16 39 17900 1200 55 16 39 21800 1300 55 16 39 25700 1400 55 16 39 29600 1500 55 16 39 33500 1600 55 16 39 37400 (Best case)

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