Develop a simulation model to estimate the profits

Reference no: EM132638811

Question - You are a management accountant for REGENT ELECTRONICS, a retailer of computers. The monthly demand for the A1 model of computers follows a normal distribution with a mean of 350 and a standard deviation of 75. Your company purchases there computers for 1200 and sells them at $2,300. Demand that the company cannot meet is lost to its competitors.

No of units held at month end	Inventory cost per unit
0 to 200	$12
201 to 400	$18
401 and above	$25

It costs the company the following amounts for every computer held in inventory at the end of each month:

Currently, the company follows a policy where it places an order for 1,000 computers whenever the inventory at the end of a month falls below 100 units. Your supplier charges you an administration fee of $500 per order placed. Orders placed at the end of a month arrives at the beginning of the next month.

It is now the beginning of January 2020. The company has 400 units of A1 computers in inventory.

Required -

1. Develop a simulation model to estimate the profits that the company can expect to make over the next two years (i.e. total profits from Jan 2020 to Dec 2021).

2. Based on your model, what is the 95% confidence interval of the mean value of profits over the next two years?

3. Construct a suitable histogram to represent the frequency distribution of the range of profits over the next two years.

Reference no: EM132638811

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