A distribution organization is interested in analyzing potential profit possibilities for a new product they will soon be offering to their customer base.

The amount that can be charged depends on market conditions and based on the marketing team's research and expertise, the team believes there is a 20% chance customers will pay $130 per unit and an 80% customers will pay $100 per unit for this product.

During the initial offering period next month the team also believes that the fewest the organization will be able to sell to the customer base is 2000 units. Most likely, next month 3000 will be sold, but the most optimistic forecast calls for 5000 to be sold.

From negotiations with various suppliers of the item, the purchasing team believes the per unit cost of the item will be somewhere between $70 and $110 per unit with all possible prices in between equally likely (hint: this implies a uniform distribution).

Assignment

Develop a spreadsheet model and perform Monte Carlo analysis to answer the following questions. You are required to provide screenshots of the simulation results to support your answers.

a. Using statistical means, determine the mean profit (or loss) for the item next month.

b. What is the likelihood the item will not be profitable for the organization next month?

c. Which factors in the next month profit analysis are uncertain?

d. If management needed to focus on one uncertain item, which should it be? Why?