General Ford (GF) Auto Corporation is developing a new type of compact car. This car is assumed to generate sales for the next 10 years. GF has gathered information about the following quantities through focus group with the marketing and engineering departments:

• Fixed cost of developing car
• Variable production cost
• Selling price
• Demand
• Production
• Interest rate

Objective

GF wants to develop a simulation model that will evaluate its net income for this new car based on its production quantity and selling price.

Variables and Attributes

Variable	Variable Type	How Measured	Related to
Fixed production cost	Input Variable	Total Amount in $	Fixed cost
Variable production cost	Input Variable	Total Amount in $	Variable cost
Inflation rate	Input Variable	%	Variable cost
Selling price	Input Variable	$	Sales revenue
Demand	Input Variable	Integer	Sales revenue
Production policy	Input Variable	Statement (define a constant value)	Production quantity
Year-end discount for leftover	Input Variable	$	Sales revenue

Mathematical representation for calculating dependent (intermediate) variables

1. Production Quantity = Demand + (Demand * Production Policy Factor)
2. Selling Price = Unit Price + (Inflation Rate * Constant K₁ )
3. Fixed Production Cost = Fixed Cost + (Inflation Rate * Constant K₂ )
4. Variable Production Cost = Variable Cost + (Inflation Rate * Constant K₃ )
5. Sales Revenue = (Demand * Selling Price) – Year-End Discount for Leftovers
   (We assume Production Quantity always exceeds the Demand)
6. Total Fixed Cost = Production Quantity * Fixed Production Cost
7. Total Variable Cost = Production Quantity * Variable Production Cost
8. Total Cost = Total Fixed Cost + Total Variable Cost
9. Net Income = Revenue – Total Cost

Draw the corresponding influence diagram

As you see the last line (9) talks about Net income. This is your outcome and as you know its symbol is a hexagon. Then to decompose it check what variables are used to compute net income. The revenue and total cost! So continue this way to draw your influence diagram.

To implement it check the advertising budget in class exercise. These might be of help.

Build the influence diagram in Excel with the following input variable values:

Demand = 10,000

Production Policy = Prudent (0.1)

Inflation Rate = %2

Unit Price = $14,000

Fixed Cost = $2,000

Variable Cost = $1,500

Year-End Discount for Leftovers = $1,000,000

Constants	Value
K1	50000
K2	2000
K3	3000

What is the Outcome Variable and its value?

Forecasting next five years' profits

Assume demand increased by %10 percent for the next 5 years. Calculate the net present value of the next 5 years' profit. Use %8 interest rate.

Year	Yearly Demand	Production Quantity	Sales Revenue	Total Fixed Cost	Total Variable Cost	Total Cost	Net Income
0
1
2
3
4
5

Answer rating: 100% (QA)

Answer Question 1 Variable Variable Type How Measured Related to Fixed production cost Input Variable Total Amount in Fixed cost Variable production cost Input Variable Total Amount in Variable cost I... View the full answer