Selling refrigerators at Freezco
Inputs
Probabilities of failure in:
Second year Third year
First year
0.03 0.05 0.07
Sales per year 10000
Replacement cost$500
Simulation of a single refrigerator
Random Number
Survives first year? 0
Survives second year (assuming0it survives first)?
0
Survives third year (assuming it survives second)?
Replace during warranty for 3-year warranty?
Replace during warranty for 2-year warranty?
Summary measures from Crystal Ball (1000 iterations, Seed = 999)
3
Warranty period years 2 years
Mean percentage of refrigerators replaced=
Confidence interval for 3-year warranty (mean - 1.96*standard error, mean + 1.96*standard error)
Number of iternations
ndard deviation obtained
Lower limit
Upper Limit
Estimated number of trials required to achieve UCL-LCL=0.01
Using precision control feature in Crystal Ball, about 18000 trials were needed to achieve a 95% confidence level with
Sumary measures from Crystal Ball (+- 0.005 precision with 95% confidence)
3
Warranty period years 2 years
Mean percentage of refrigerators replaced=
Cost analysis
3
Warranty period years 2 years
Yearly replacement cost
Difference
ndard error)
hieve a 95% confidence level with a precision of +- 0.005 (i.e., 0.01/2)
Selling refrigerators at Freezco
Inputs
Probabilities of failure in:
Second year Third year
First year
0.03 0.05 0.07
Sales per year 10000
Replacement cost $500
Simulation of a single refrigerator
Random Number
Survives first year? 0 0
Survives second year (assuming it survives first year)? 0 0
Survives third year (assuming it survives first and second years)? 0 0
Replace during warranty for 3-year warranty? 1
Replace during warranty for 2-year warranty? 1
Summary measures from Crystal Ball (1000 iterations, Seed = 999)
Warranty period 3 years 2 years
Mean percentage of refrigerators replaced= 13.00% 7.00%
Confidence interval for 3-year warranty (mean - 1.96*standard error, mean + 1.96*standard error)
Number of iternations 1000
standard deviation obtained 0.33
Lower limit 10.95%
Upper Limit 15.05%
UCL-LCL=0.01
Estimated number of trials required to achieve16734
Using precision control feature in Crystal Ball, about 20,000 trials were needed to achieve a 95% confidence level with
This will vary by computer
Sumary measures from Crystal Ball (+- 0.005 precision with 95% confidence, 20000 replications)
Warranty period 3 years 2 years
Mean percentage of refrigerators replaced= 14.00% 8.00%
Cost analysis
Warranty period 3 years 2 years
Yearly replacement cost $700,000 $400,000
Difference $300,000
% confidence level with a precision of +- 0.005 (i.e., 0.01/2)