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Chapter 1 · Corporate and Legal AffairsPractice
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CONCEPT PRACTICE

Monte Carlo simulation

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2026 Spring · Subject A · Q58

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A factory manager is planning the costs for the next two years. Instead of using a single estimate, the manager runs thousands of simulations where material prices, customer demand, and labor costs vary randomly within realistic ranges. This creates a probability distribution of possible costs, helping in risk planning and setting contingency budgets. Which of the following is an analytical method that the manager is using?

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Source: 2026S_FE-A_Questions.pdf, PDF page 21. ID: 2026S-A-Q058. Explanation written for this textbook.

Original question · Q58
A factory manager is planning the costs for the next two years. Instead of using a single estimate, the manager runs thousands of simulations where material prices, customer demand, and labor costs vary randomly within realistic ranges. This creates a probability distribution of possible costs, helping in risk planning and setting contingency budgets. Which of the following is an analytical method that the manager is using?

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