Question
You consider selling a new product. You can have the product manufactured in Mexico for a fixed cost of $50,000 plus $8 per unit, but
You consider selling a new product. You can have the product manufactured in Mexico for a fixed cost of $50,000 plus $8 per unit, but you need to have all units manufacture at once before you can start selling the product. You intend to store and sell the units over the next 5 years. All other costs per unit (shipping, storage, and overhead) is $10. Your sales expert estimates that you can sell over the next 5 years on average 10000 units per year at $30 per unit. However, this number is uncertain, and you think it makes sense to model annual sales as a normally distributed random variable. Your sales expert thinks that there is a 95% chance that the actual sales will be between 5000 and 15000 units each year. You cannot sell more than what you have and all remaining inventory after year 5 is worthless. Assume that you have the space to store the product. You are using a MARR of 12%.
Use a spreadsheet simulation in Excel to determine how many units you should order. The simulation should use at least 100 independent runs.
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