Suppose that a firm can produce a part it uses for $520 per unit, with a fixed cost of $25,000.  The company has been offered a contract from a supplier that allows it to purchase the part at a cost of $544 per unit, which includes transportation. The key outputs in the model are the difference in these costs and the decision that results in the lower cost. Assume that the production volume is uncertain. Suppose the manufacturer has enough data and information to estimate that the production volume will be normally distributed with a mean of 1,000 and a standard deviation of 85.

Use a 100-trial Monte Carlo simulation to find the average cost difference and percent of trials that result in manufacturing or outsourcing as the best decision. (Your data table should show both the cost difference and decision for each trial.)

Answer rating: 100% (QA)

Showing the cost difference and decision for each trial in the Monte Carlo simulation Trial Cost Difference Decision 1 3240 Manufacturing 2 2990 Outsourcing 3 2090 Manufacturing 4 10045 Manufacturing ... View the full answer