SUBDOMAIN 309.3 - QUANTITATIVE ANALYSIS

Competency 309.3.1: Decision-Making Models - The graduate uses optimizing models and other models as aids for making more informed decisions.

Objective 309.3.1-01: Use probabilistic simulation to estimate the best decision alternative in a given situation.

Introduction:

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. Random numbers are provided in the attached template; these numbers are discrete, uniform, and between 1 and 100 inclusive.

Given:

Management has asked you to help estimate the most likely cost per yard to resurface a stretch of highway so that they can develop a contract bidding price. You are to simulate cost behavior using probabilistic simulation (Monte Carlo simulation) and have been provided with the following cost estimates. Cost per unit for materials, labor, and utilities and their probability distributions are provided in the attached worksheet. In your calculations, round to the nearest cent.

Task:

A. Complete the attached “Simulation Template” by doing the following:

1. Determine the following costs:

a. Average materials cost per unit

b. Average labor cost per unit

c. Average utilities cost per unit

d. Average total cost per unit

2. Show your random interval tables you used to determine the costs in parts A1a–A1d.

a. Explain how you used the random interval tables from part A2 to populate the Simulation Template.

Note: Macros must be enabled to open and use the Simulation Template spreadsheet.

Note: Run 12 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

1. Explain how you arrived at the sellin