The production cost and sale price of each units are Rs. 40 and Rs. 50 respectively. Any unsold product is to be disposed off at a loss of Rs 15 per unit. There is penalty of Rs 5 per unit if demand is not met. Using the following Monte Carlo simulation technique, estimate the total profit/loss for the company for the next ten days. If the company decides to produce 29 units per day, when what is the advantage or disadvantage to the company?

Mumbai University > Mechanical Engineering > Sem 7 > Operations Research

Marks: 10 Marks

Random numbers -

1470,9283,6264,3555,9743,2506,

7959,5352,6912,4167,7984,8579,

2486,0788,8872,6599,9769,

4629,3246,1781.

As a first step, random numbers 0000-9999 are allocated to various possible sale values in proportion to the probabilities associated with them.

Now, we simulate the demand for the next ten days using given random numbers as shown in table.

From the given information, we have,

Profit per unit sold = Rs 50 – Rs 40 = Rs 10

Loss per unit unsold = Rs 15

Penalty for refusing demand = Rs 5 per unit

Using these inputs the profit/loss for the ten days is calculated as given in the table, first when production is 30 units per day and then when it is 29 units.

Simulation Worksheet: Calculation of Profit/Loss

As we can see for the first ten random numbers the total profit for ten days is Rs 2809 when 30 units are produced. And the total profit for ten days is Rs 2830 if 29 units are produced. Therefore it’s advantageous to produced 29 units.

As we can see for second simulation the total profit for ten days is 2790 for 30 units produced and 2750 for 29 units produced therefore if 29 units produced is disadvantageous.