# You are to simulate cost behavior using probabilistic simulation (Monte Carlo simulation) and have been provided with …

The following task, in which you are asked to conduct a   small number of simulation trials, should be done with manual calculations.   Please be aware that the simulation results of such a small number of trials   would not be sufficient for one to draw valid conclusions in a real   situation. A large number of trials run on a computer would be necessary in   order to arrive at a valid conclusion.   Given:       Management   has asked you to help estimate the most likely cost per unit to produce a new   product so that they can project profits at different selling prices. You are   to simulate cost behavior using probabilistic simulation (Monte Carlo   simulation) and have been provided with the following cost estimates.   Materials cost will range between \$33 and \$39 per unit, labor between \$22 and   \$26 per unit, and utilities between \$3 and \$5 per unit. The probability   distributions of cost per unit are as follows.   Materials:       •  The   probability is .18 that the cost will be \$33.   •  The   probability is .23 that the cost will be \$35.   •  The   probability is .32 that the cost will be \$38.   •  The   probability is .27 that the cost will be \$39.          Labor:       •  The   probability is .12 that the cost will be \$22.   •  The   probability is .18 that the cost will be \$23.   •  The   probability is .22 that the cost will be \$24.   •  The   probability is .28 that the cost will be \$25.   •  The   probability is .20 that the cost will be \$28.          Utilities:       •  The   probability is .26 that the cost will be \$3.   •  The   probability is .43 that the cost will be \$4.   •  The   probability is .31 that the cost will be \$6.          Task:       A.  Using   the attached “Simulation Template,” determine the following:   1.  Average   materials cost per unit    2.  Average   labor cost per unit     3.  Average   utilities cost per unit     4.  Average   total cost per unit            Note:   Run 10 trials using the random numbers that are provided on the “Simulation   Template” for each probability distribution. Use the random numbers in the   exact sequence that they appear on the template for each cost.          Note:   Submit your completed spreadsheet as an attachment to this task.          B.  Determine   the selling price per unit that should be established for this product using   your simulation results and assuming that the company wants to realize an   average markup of \$20 on each unit sold.

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