Estimate the company expected annual profit

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Reference no: EM132836934

A hardware company sells a lot of low-cost, high-volume products. For one such product, it is equally likely that annual unit sales will be low or high. If sales are low (60,000), the company can sell the product for $10 per unit. If sales are high (100,000), a competitor will enter and the company will be able to sell the product for only $8 per unit. The variable cost per unit has a 25% chance of being $6, a 50% change of being $7.50, and a 25% change of being $9. Annual fixed costs are $30,000.

a. Use simulation to estimate the company's expected annual profit.

b. Find a 95% interval for the company's annual profit, that is, an interval such that about 955 of the actual profits are inside it.

Simulation software used is Palisade Decision Tools.

Reference no: EM132836934

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