(A) Use a Simulation Model to Help the Institute Decide

question 2

Essay

(A) Use a simulation model to help the institute decide how many violins they must reserve with the instrument company. Consider five different possible reservation quantities: 400, 500, 600, 700, 800. Which of these quantities yields the highest total revenue, net of instrument costs?
(B) Which simulation yields the largest median total revenue?
(C) Which simulation has the most risk as measured by spread or dispersion in the data? Please state clearly what statistic you used to answer this question.
(D) Are there any simulations in which there is at least a 1 in 20 (i.e., 5%) chance of getting a negative total revenue? Briefly explain in one sentence.
(E) For each simulation, what is the probability of exceeding $175,000 in total revenue (approximate these numbers as closely as possible from the data given in the above table). Please put your answer in the following table: (F) Considering your answers for (A) through (E), please state how many instruments you think should be reserved in advance and explain why.
(G) Suppose the institute is able to negotiate with the instrument company to reduce the cost for a violin from $500 to $350. Re-run the simulation model using the same reservation quantities (but with $350 for the unused instrument cost). Has the reservation quantity that yields the highest average revenue changed? If so, please explain why this has occurred.

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Definitions:

Activity Rate

The cost driver rate used in activity-based costing to allocate costs to products or services based on the activities required for their production or delivery.

Materials Handling

The process of moving, protecting, storing, and controlling materials and products in any form throughout the manufacturing and distribution process.

Material Moves

Activities involved in the physical relocation of materials within a production facility, which can impact production time and efficiency.

Overhead Cost

Indirect costs associated with production, not directly tied to a specific product, such as utilities and rent for production facilities.