MFB wants to introduce a new gym outfit and sees it as an opportunity to attract more customers. The monthly fixed costs are $8,500. The selling price per outfit, variable cost per outfit and sales quantity (number of outfits) vary each month according to labour costs, material supply and competitors’ prices. The sales quantity, selling price and variable cost are defined by the following three probability distributions: Sales Quantity
Selling Price
Variable Cost
Number of outfits
Prob.
Interval of random #s
Price per outfit ($)
Prob.
Interval of random #s
Cost per outfit ($)
Prob.
Interval of random #s
700
0.12
24
0.07
16
0.17
800
0.18
25
0.16
17
0.32
900
0.20
26
0.24
18
0.29
1,000
0.23
27
0.25
19
0.14
1,100
0.17
28
0.18
20
0.08
1,200
0.10
29
0.10
MFB would like to know whether it is profitable to introduce the new gym outfit. The Profit Model: [Profit = Sales quantity * (Selling Price – Variable Cost) – Fixed Cost]
Simulate 3 months of sales and compute the monthly profit. Use the Simulation Worksheet below. Use random numbers from the following lists, starting with the first number in the list. For example, to simulate the sales quantity for Month 1, use 0.50; for selling price, use 0.71, and so on.
For sales quantity: [0.50, 0.34, 0.81, 0.92, 0.66, 0.08, 0.85, 0.84]
For selling price: [0.71, 0.21, 0.28, 0.91, 0.41, 0.35, 0.95, 0.49]
For variable cost: [0.78, 0.10, 0.46, 0.95, 0.81, 0.18, 0.32, 0.25]
Simulation Worksheet
Month
Random Number
Sales Qty (Outfits)
Random Number
Selling Price/outfit ($)
Random Number
Variable Cost/outfit ($)
Profit ($)
1
0.50
2
3
Based on the simulated results, what is the average variable cost per outfit?