User Manual Learning Phase

iBizSim: International Business Simulations
International Business Simulations
User Manual
iBizSim BM 7 Learning Phase
2014 by Prof. Dr. Ashok N. Ullal, Hoelderlinstrasse 13, 72127 Kusterdingen, Germany
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Table of Contents
1. The Business Simulation iBizSim..................................................6
1.1. Structure of the Business Simulation iBizSim.....................................6
1.2. Organization of the Management Team.............................................7
1.3. Management Tasks.................................................................................9
1.4. Company Policy.......................................................................................9
1.5. Analysis and Evaluation of Data - Setting up Indices.....................11
1.6. Methodology for Decision Making....................................................13
1.7. The Products..........................................................................................14
1.8. The Markets...........................................................................................15
1.9. Development of Demand.....................................................................16
1.9.1. General........................................................................................................16
1.9.2. Decisions....................................................................................................16
1.9.3. Demand for Alesa and Bordo in the Markets........................................16
1.9.4. Effects of Inability to Deliver...................................................................17
1.10. Terms of Payment...............................................................................19

1.11. Image.....................................................................................................20
1.12. Production............................................................................................21
1.12.1. Personnel Capacity.................................................................................21
1.12.2. Machine Capacity....................................................................................22
1.12.3. Sequence for Purchase, Production and Sale......................................24
1.13. Costs......................................................................................................25
1.13.1. Variable Production Costs.....................................................................25
1.13.2. Variable Marketing Costs......................................................................25
1.13.3. Fixed Costs...............................................................................................25
1.13.4. Depreciation Costs..................................................................................26
1.13.5. Stock Value..............................................................................................26
1.14. Financing..............................................................................................27
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1.14.1. Procurement of Funding........................................................................27

1.14.2. Liquidity and Insolvency........................................................................28
1.15. Exchanging Currencies......................................................................29

1.16. Summary of the Effect of Influencing Factors................................30
1.16.1. Effect on Demand...................................................................................30
1.16.2. Other Effects............................................................................................31
2. Decisions........................................................................................32
2.1. Company Decisions..............................................................................34
2.1.1. Lean Management.....................................................................................34
2.1.2. Payment of Dividends..............................................................................35
2.2. Sales Decisions.......................................................................................36

2.2.1. Market Research........................................................................................36
2.2.2. Product Policy - Product Management..................................................36
2.2.3. Pricing Policy.............................................................................................38
2.2.4. Communication Policy - Advertising, Sales Promotion......................38
2.2.5. Distribution Policy - Marketing Logistics..............................................39
2.2.5.1. Quantities to be Transported..........................................................................39

2.2.5.2. Sales Branches....................................................................................................40
2.2.5.3. Training of Sales Personnel - Key Accounts.................................................40
2.3. Purchasing Decisions............................................................................41

2.3.1. Market Research........................................................................................41
2.3.2. Purchase of Raw Material.........................................................................41
2.3.3. Purchase of Bought-in Goods..................................................................41
2.4. Production Decisions...........................................................................42

2.4.1. Planning of Production Quantities.........................................................42
2.4.2. Appointment and Dismissal of Personnel.............................................43
2.4.3. Sale and Purchase of Machines...............................................................43
2.4.4. Lean Production........................................................................................44
2.4.4.1. Total Quality Management (TQM)...............................................................44

2.4.4.2. Production Technology...................................................................................44
2.4.4.3. Continued Training of Personnel..................................................................44
2.5. Financial Decisions...............................................................................46

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2.5.1. Raising Short-term and Long-term Loans.............................................46

2.5.2. Fixed-term Deposits with Banks.............................................................46
2.5.3. Export Factoring........................................................................................46
2.5.4. Exchange Rate Fixing................................................................................47
3. Annexes..........................................................................................48
3.1. Capacity Calculations...........................................................................49
3.2. Calculation of Manufacturing Costs..................................................50
3.3. Determining the Change in Stock Value...........................................51
3.3.1. In the Central Store...................................................................................52
3.3.2. In the Branch Store Germany...............................................................53
3.3.3. In the Branch Store U.S.A.....................................................................54
3.3.4. In the Branch Store China....................................................................55
3.3.5. In the Branch Store India......................................................................56
3.3.6. Change in Stock Value..............................................................................57
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Preface
This course is based on iBizSim: International Business Simulations, a series of business
simulations developed by Prof. Dr. Ashok N. Ullal, Professor emeritus, School of
International Business (now merged into ESB Business School), Reutlingen University,
Germany.
The course is designed to give groups of students working as teams the opportunity to
build and implement an international business strategy for a simulated company
operating in the world markets. The simulated company is located in Germany, has a
production plant initially in Germany, manufactures initially two consumer products
and sells these in four markets, Germany, U.S.A., China and India.
The course emphasizes strategic planning and control and expects you to use your
knowledge and experience from all the other business-related courses in a very
integrated manner.
The simulated company that you will manage:
Purchases
Produces
Transports
Sells
raw materials and bought-in goods - invoices are drawn up in Euro.

goods in the Germany - all costs arising are in Euro.
the finished goods to the central store and to the sales branches in the
various sales markets.
the products Alesa and Bordo in four markets in which the invoices
are drawn up in various currencies.
Currencies used
Market
Germany
Currency Euro
(EUR)
U.S.A.
China
India
U.S. Dollar
(USD)
Chinese Yuan
Renminbi
(CNY)
Indian Rupee
(INR)
The balance sheet, the profit and loss account, and the financial accounts will all be
drawn up in Euro.
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1. The Business Simulation iBizSim

1.1. Structure of the Business Simulation iBizSim
Several companies in a particular branch of industry are in competition with one
another. They sell the products Alesa and Bordo in different markets that are
independent of one another. Each company manufactures the products it supplies, but
there exists the possibility of buying-in these goods.
The products are generalized consumer goods. Hence the simulation is based on the
application of general business principles.
Specific experience from particular branches of industry is therefore not necessary for
taking part in the simulation. The products Alesa and Bordo will be described in detail
below.
The structure of the production plant, sales and turnover in all markets, stocks of goods
and cash, outgoing and incoming payments, i.e. all the information which is necessary
for managing the company, are in the Management Report. The first Management
Report shows the economic and operating state of the company at the close of the initial
period 0. All the companies have the same opening situation.
The simulation is run in chronological periods of a quarter each. Hence four of these
periods constitute a financial year. At the start of each period, each company makes the
decisions that are to apply in that period. The decisions of all the companies are
processed in a computer program, and the results of each period are printed out for each
company in a Management Report. From this report, each management team can see the
consequences of its decisions. The report constitutes the basis of the decisions for the
subsequent period.
One of the tasks of the companys management team is to analyze the reports and to
ascertain the interrelationships, as well as the factors involved, in order to establish a
rational basis for subsequent optimal decisions.
All decisions have to be made in such a way that the long-term success of the company
beyond the conclusion of the simulation is assured.
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1.2. Organization of the Management Team

The amount of information and knowledge necessary for the successful running of a
company is continually increasing. This forces the management to delegate important
duties to senior colleagues who in turn have to work together for the company's success.
iBizSim recognizes this trend and requires that all business functions are exercised by
working groups (= teams).
Hence your willingness to work in a team is an absolute prerequisite.
Your team will take over the management of one of the companies that are competing
with one another in an industry. In real life, management decisions directly affect the
success or failure of a company. In the same way, your team has to take decisions that
will affect your company. The decisions necessary for this will be made at the start of
each period. The owners of your company expect you to perform better than the
companies that are in competition with you.
It is your task to:
Improve the market position of the company.
Achieve a satisfactory level of profitability.
Achieve a satisfactory level of profitability.
In principle, the internal organization and allocation of responsibilities is left to you
members of the team. However we strongly recommend that you allocate specific
functional areas e.g. sales, finance, production to individual team members. In the areas
of responsibility allocated in this way, each team member can prepare the decisions in
the allocated functional area and present them to the team for subsequent discussion.
Finally, your team must be able to reach a group decision. This means that you must
first agree on how the final decisions are to be made, whether by unanimous or
majority vote.
There are further points to consider in corporate seminars.
If participants from the same real-life company find themselves in the same
team, there is little point in transferring the familiar hierarchical chain of
command to the simulation. If a member of the team, in real life in a high
position, tries to push through his/her own view in the simulation in the same
way as in the real world, and to deny the other team members any chance of
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developing, then motivation will die, and a major part of the point of
participating in the simulation will be lost.
Not infrequently, one still encounters a certain friction e.g. between engineers
and personnel in the financial departments, between personnel in production
and those in sales, based on a lack of knowledge of the tasks and problems that
other colleagues have to cope with.
It might therefore be better to allocate to the members of the team tasks that are
unfamiliar to them from the point of view of their training or activity in their
company. If in the simulation, for example, a production engineer takes over the
marketing section, whereas a director of sales is responsible for production, then
a certain mutual understanding can be developed which will help to overcome
friction in the company, a blinkered approach, as well as any departmental
empire building.
Whatever organization you choose, remember that it is important for every member of
the team to be involved as much as possible in reaching the decisions.
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1.3. Management Tasks

Definethegoalsofthecompany
Planthestrategicandoperationalmeasures
Ensuretheavailabilityofresources
Rawmaterials
Machines
Personnel
Capital
Producetheproducts
Alesa
Bordo
Supplythemarkets
1.4. Germany
Company Policy
U.S.A.
China
India
Page 9

One of your first tasks as a team will be to define your business objectives and the
strategy to achieve them.
After your team has become familiar with the simulated company, the products and the
markets, we expect a clear statement of short- and long-term company policy.
The company is not rigidly bound to the policy established at the start of the
simulation. However, any deviations from it need to be discussed and justified in the
final discussion.
Here are some examples of business objectives:
In production:
Optimal stock holding, high degree of utilization of capacity,

minimization of costs, an even utilization of capacity, minimal
staff turnover.
In finance:
Short and long term profitability, low level of debt, self

financing, high yield on capital, distribution of high dividends.
In marketing:
Optimal satisfaction of customer demand, favorable image,

steady growth, high quality, high market share, and constant
ability to supply the goods, high turnover.
In the social sphere: Contented workforce, continuity of employment even when

there are fluctuations in sales, identification of employees with
the company.
Your team should discuss such widely varying and often conflicting business objectives,
even if it means that at the end of the discussion some easily determinable objectives
like company profit or profitability are selected as objectives and used as a measure of
success and hence of ability.
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1.5. Analysis and Evaluation of Data - Setting up Indices

The first Management Report shows the opening situation at the end of period 0 and
provides a wealth of data at the beginning of the simulation. Subsequent reports at the
end of each period give each management team an overview of the success and situation
of its company. A careful analysis will show whether changes have occurred in the
various areas, and if so which changes. It is advisable to consider what information can
be represented by indices/statistics that are particularly meaningful and that should be
regularly collated and displayed in charts.
In the analysis and processing of the data, the following points could be examined:
In which areas of the company do bottlenecks exist? How significant are they?
What short-term measures can be taken to optimize utilization, what long-term
measures are there to eradicate the bottlenecks? What, therefore, is to be done?
Which of the indices appear really fundamental and should thus have particular
attention paid to them?
Which data should be collected in tabular form over several periods, or
extrapolated?
Which data are suitable for graphical representation?
How is the progression of the curve of the diagrams to be interpreted?
What deviations from the planned or expected course of events are discernible?
What factors can cause the deviations?
How sensitive to these factors is the situation?
What effects do price changes have on demand in the markets?
What effect does expenditure on communication policy have in the markets?
Meaningful information could be supplied by relative figures. They provide
relationships in the form of ratios between sets and sub-sets in the same period
e.g. the share of material costs in total costs. The reference of essentially different
figures e.g. difference and/or change in demand in each market. Index figures
between essentially similar but chronologically dissimilar figures e.g. personnel
costs in period 1 / personnel costs period 0.
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We recommend that you select and use only a limit number of indices.
Remember that the quality and usefulness of indices depends on the quality of the data
on which they based, and some ratios/relationships may not be meaningful.
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1.6. Methodology for Decision Making

Acquire management information
Past periods
Current period
Future periods
Analyze management information
Set objectives
Define strategy
Plan measures
Develop plans
Purchasing plan
Production plan
Sales plan
Finance plan
Cost plan
Assess alternatives
Take decisions
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1.7. The Products

Your company currently manufactures the products Alesa and Bordo. They are durable
consumer goods.
The products are offered on four different markets. At the start of the simulation, their
selling prices and sales figures are identical for all companies.
Alesa and Bordo may be characterized as follows:
They are manufactured partly from the same raw materials, partly from different
ones. The raw materials are Aurit, Bekat and Calot.
Each unit of Alesa requires 3 units Aurit and 1 unit Bekat.
Each unit of Bordo requires 2 units Bekat and 2 units Calot.
They are manufactured on the same groups of machines, but require different
production times per unit.
Both products may be bought in as finished goods which, thanks to strict quality
control measures, are equal in quality to your own production.
There is no competition between Alesa and Bordo as substitutes.
Alesa is a product that has been available in the markets for several years and has
developed into a main generator of turnover. The well-tried and tested basic
concept, which, when it was originally introduced, was considered a major
innovation, has been largely retained. From time to time attempts have been
made by introducing minor improvements and adaptations to respond to ever
more sophisticated requirements, particularly in the markets Germany and
U.S.A. But this has not prevented the customers from turning to newer products.
Bordo is a mature product that corresponds to state-of-the-art technology.
Bordo meets the high demands of the discerning consumer with high spending
power. It has earned high praise from consumer test associations and in
technical journals. Bordo has been available in the markets for several periods
and to date has fulfilled all expectations. So far the markets have been only
partially opened up, and that to differing degrees.
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1.8. The Markets

The products Alesa and Bordo are offered on four geographically separate global
markets, Germany, U.S.A., China and India.
All companies compete in these markets, but there are no further suppliers. Cooperation
between companies is not allowed.
The markets are different in size and structure.
It is up to each company to decide in which markets it wishes to supply its goods. Sales
branches have been set up in all markets. They are the prerequisites for opening up and
supplying the markets. They fulfill all necessary functions such as processing
estimates/offers and orders, after-sales service, customer care, service backup, storage
and dispatch.
The transport of products to the various markets causes different costs. These costs are
specified in the List of Parameters.
The size of the sales branches in the four markets is determined by the expected demand
for Alesa and Bordo This is fixed by expenditure on the sales branches in one period. The
level of expenditure on a sales branch has no effect on the level of demand. It merely
affects the capacity to process and deliver customer orders.
Please note that in the profit and loss account the costs of maintaining additional stores
in the sales branches are not included under the heading Sales branches but are lumped
together with the costs of additional stores in the central store under the heading
Storage costs for finished goods.
The companies attempt to build up long-term business relationships in the markets, a
permanent presence on the markets is hence obligatory. The closing down of individual
sales branches is not permissible, even when the situation on the market does not allow
for costs to be covered on a short-term basis.
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1.9. Development of Demand

1.9.1. General
In the first period, the trend of the general economic environment in all markets remains
the same. To date, there have been various predictions of the development in subsequent
periods.
Customer demand for the products of a company is determined by the following factors:
The decisions of the company.
The decisions of competing companies.
The general economic environment.
Factors specific to particular markets.
The reputation (= image) of the company.
The development of Alesa and Bordo in the markets may vary and can be influenced to
a considerable degree by the decisions of the companies. Hence, the sales position of the
individual companies can and will deviate from the general situation in the overall
markets.
1.9.2. Decisions
As at the start of the simulation the products of all the companies are the same, special
significance attaches to the companies sales policy decisions. Their aim is to firmly
establish the name of the products and of the company in the consciousness of potential
customers, to create a competitive advantage for their own products, and last but not
least to increase demand and sales at reasonable prices.
In this, the demand and purchasing decisions of the customers will be determined
partly by their experience with the degree to which the different suppliers are able and
willing to deliver the right goods at the right time at the right price.
1.9.3. Demand for Alesa and Bordo in the Markets

Alesa and Bordo develop differently in the markets. These developments can be
influenced considerably by the companies decisions. Hence, the sales situation of the
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individual companies can, and will, deviate from the general situation on the total
markets.
Alesa was introduced a long time ago in Germany and not long afterwards in the U.S.A.
In both markets Alesa achieved high turnover figures and great success. However, for
some time now turnover in Germany has been stagnating. Even the U.S.A. has in the
meantime reached a high degree of saturation. Market resistance is forecast to grow
particularly in Germany. For the coming periods pessimistic forecasts predict a
considerable decline in demand in Germany, and with a slight time lag also in the U.S.A.
This trend will gradually accelerate. In this, Alesa's situation in Germany is likely to
become more critical than in the U.S.A. To begin with, replacement sales will continue
but will decline in the long run.
In line with declining interest on the part of potential customers, the level of personal
preferences for Alesa in these markets must be expected to decline or disappear. This,
however, also applies to the comparable products of the competition.
Alesa was introduced in China and India at a considerably later date. In these markets,
the product can be considered as being in the mature stage. It has been possible to
achieve such a level of consumer awareness of Alesa since its introduction that there is a
preference for it over similar products of other companies. But this, too, applies to the
competition.
Bordo, as a technically high-quality product, was received well in Germany and the
U.S.A., where potential customers are particularly receptive to new ideas. The correct
application of sales policy instruments has enabled the establishment of a loyal group of
regular customers. Competing companies, offering comparable products, have been able
to do the same. In Germany and the U.S.A. lower turnover growth rates are expected. On
the other hand, Bordo was introduced in China and India only at a later date. Higher
turnover growth rates can be expected in these markets, as the product is increasingly
accepted by customers, leading to higher demand.
The forecasts are only valid while the economic situation remains constant, i.e.
upswings and downswings will increase or decrease the expected quantities. A
continuous observation of the markets and their developments will improve the level of
information of the companies.
1.9.4. Effects of Inability to Deliver

If a company cannot satisfy demand, i.e. if the demand in a specific period and in a
specific market exceeds the supply, on of the following scenarios may develop:
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The customers are patient and are willing to wait for late delivery in the
following period. Non-fulfilled orders are stored and added to the new orders of
the following period, hence leading to an increase in demand in the following
period.
Customers are not prepared to accept delivery delays. They cancel orders in part
or in total.
The competing companies meet the unsatisfied demand in proportion to their
sales.
Non-fulfilled orders prejudice the image of the company. The damage to the image
increases in proportion to the inability to satisfy the demand in that period.
It is difficult to win back in subsequent periods those customers who have drifted away
as a result of this loss of image.
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1.10. Terms of Payment

The customers in all market pay after 90 days i.e. in the following period.
Turnover figures are indicated in the balances of the pertinent periods as accounts
receivable. Such accounts receivable in a foreign currency are converted into the base
currency of your company, Euro, at the exchange rate valid in that period.
There are two possibilities depending on your decision to use exchange rate fixing (see
financial decisions):
If the exchange rates are not forward fixed, the accounts receivable are entered
on the assets side at the spot rate. Any exchange rate profits or losses are then
indicated in the profit and loss account of the subsequent period.
If exchange rates are forward fixed, the accounts receivable are entered on the
assets side at the forward rate. Hence there will be no exchange rate profits or
losses registered in the following period.
Please note that the exchange rate fixing is entered as a decision individually for each
market and should not be entered for your home market Germany with its currency
Euro. Each decision covers the entire turnover of the selected market and cannot be
made for a part of the turnover of that market.
It is assumed that the payments from the export markets in the initial period 0 are made
to the company in accordance with the contract, i.e. in the following period.
Factoring is possible (see financial decisions).
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1.11. Image
The market position of the companies, and thus also buyer behavior, are influenced by,
among other things, image. By image we mean the sum total of all factors that
contribute to the public reputation of a company. Cultivating this reputation can lead to
an indirect influencing of customers, and to considerable favorable side effects on the
promotions side. The companies establish standards that - from the point of view of the
customers - provide the best performance.
By adopting the following measures, companies can encourage the desired favorable
attitude of the customers:
Punctual delivery of ordered goods:
Punctual delivery is a strong sales argument. It is - rightly - taken for granted by
customers. It therefore does not improve the regard in which a company is held. On the
other hand, failure to provide punctual delivery damages the companys reputation and
worsens its image in proportion to the degree to which demand in the market cannot be
met. Damage to image is effective in the following period.
Motivation and qualification of personnel involved in marketing:
The products are of a high technical standard and hence require explanation and
guidance from the sales personnel. This puts the motivation and the qualifications of
the sales personnel at a premium. They can be achieved by the training of sales
personnel.
Continuity of prices:
Customers show annoyance with, and lose faith in, companies whose prices fluctuate
greatly between periods.
Payment of dividend:
Dividend payouts up to a level benefits image.
At the start of the simulation, all companies enjoy the same image. This factor has the
value of 100. It is calculated separately for each market in each period. The image of
the companies affects the level of demand for their products: a good image can increase
demand; a poor image can result in a reduction in the demand for the products of a
company.
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1.12. Production
You are required to set up the production program to manufacture the products Alesa
and Bordo utilizing the available capacities of raw materials, machines and personnel.
The products are manufactured partly from the same raw materials, partly from different
ones. The raw materials are Aurit, Bekat and Calot.
When the financial position permits, it is possible to a balance between demand on the
markets and the necessary production capacity by:
Adapting the working hours by introducing overtime (for a maximum 2
consecutive periods) or by introducing or canceling a second shift. Note that
overtime can only be used when you are operating in single shift and cannot be
combined with the second shift.
Changing the machine capacity by purchasing or selling machines.
Changing the personnel capacity by appointing or dismissing personnel.
Buying in finished units of Alesa.
Buying in finished units of Bordo.
Utilizing excess capacity and producing for stock.
If demand exceeds available supplies of the products, your company cannot meet the
demand, with unfavorable consequences for the company. If demand is lower than the
supply of products available, stockpiling is inevitable. While this increase in stock levels
improves your ability to supply the demand in the following period, it also ties up cash.
Company policy permits a reduction of capacity to a certain minimum number
machines. This minimum number is specifies in the List of Parameters. This means that
you are not allowed to shut down your production.
1.12.1. Personnel Capacity

Every company requires a set of personnel other than those employed in the actual
production (technical and commercial administrators, skilled tradesmen, and similar) to
run the companys operations. Wages and salaries of these employees, whose number is
basically determined by size of the company, are included in the fixed costs.
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In addition, the company has available a workforce employed in the actual production.
This pool of productive labor can be enlarged or reduced by management decisions and
reduced by fluctuation.
The pool of labor decreases automatically by a certain natural attrition per
period.
Additional personnel can be hired but newly hired workers have to be trained
for 1 period before they can be used in the production.
Companies may reduce the workforce by dismissing personnel.
Only trained personnel can be used in the production. The number of trained and
untrained workers available in any period is shown in the Management Report.
If the pool of labor is insufficient to operate the existing machines and to produce the
planned quantity of goods, some machines will be standing idle. This affects the
quantity of products that your company can manufacture.
In single shift operation, no employee may work more than 8 hours per day.
You may decide to use overtime to a maximum of 2 hours per day. Agreements with the
trade unions permit overtime working only for two consecutive periods. After that, at
least one period must be worked without overtime. If you utilize overtime, the maximum
working hours increase to 10 hours per day.
In case you decide to use the second shift, the number of personnel must be doubled to
operate the machines. No employee may work in both the shifts, as the working day of an
individual employee must not exceed 8 hours.
Companies can increase the qualifications of their production personnel by expenditure
on continued training of personnel.
1.12.2. Machine Capacity

The number of machines available in any period is shown in the Management Report.
The machines are all the same.
The capacity of each machine is:
8 machine hours per working day with single-shift operations.
10 machine hours per working day with overtime.
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16 machine hours per working day with double-shift operations.
Each period covers one quarter with 60 working days.
The products Alesa and Bordo make different demands on production capacity. The base
production times are defined in the List of Parameters.
These base production times may be influenced by lean production and by the continued
training of production personnel. The effective production times are available in the
Management Report.
The variable production costs (without depreciation) are given in the List of Parameters.
The useful working life of the machines is also defined in the List of Parameters. The
linear depreciation figures are calculated in each period as costs. The companies
reinvest in each period the same amount that is calculated as depreciation. This means
that the machines are maintained at a constant level and the production capacity does
not fall due to aging machines.
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1.12.3. Sequence for Purchase, Production and Sale

Periodn
Periodn+1
Orderraw
materials
Deliveryof
raw
materials
Rawmaterial
store
Germany
Produce
U.S.A.
Centralstore
Transport
tothe
branch
stores
Deliveryof
boughtin
goods
Order
boughtin
goods
Deliver
tothe
customers
China
India
The entire quantity of raw materials delivered in any period can be processed in that
period.
Only a part of the quantity of finished goods produced in any period is available for
transport to the branch stores.
The entire quantity of bought-in goods delivered in any period is available for
transport to the branch stores.
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1.13. Costs
For the purposes of costing, the costs can be categorized as follows:
1.13.1. Variable Production Costs

The variable production costs depend on the quantity of goods produced.
It is assumed that these costs rise proportionally to the utilization of capacity, i.e. as a rule
they remain constant per hour of production and hence per unit of production. The
costs per unit will only change as a result of price changes for raw materials, a reduction
of the production time per unit, the introduction of overtime or of a second shift.
Into this category fall the costs of:
Raw materials used by the production.
Production wages.
Other variable costs. These are largely machine-dependent and are therefore
calculated as cost rates per machine hour.
The wages for surplus production personnel, i.e. personnel not required in a period, are
calculated as fixed costs.
1.13.2. Variable Marketing Costs

The variable marketing costs depend on the quantity of goods transported or sold.
This category includes:
Costs for transporting the goods from the central to the market stores.
Variable costs of the sales branches.
1.13.3. Fixed Costs

The fixed costs result from the degree of operational readiness of the company. These
costs are dependent on time and are basically independent of the quantity of goods
produced, transported or sold.
These costs are not regarded as a single, monolithic block of fixed costs, but rather are
Page 25

subdivided as follows:
Product fixed costs, e.g. in the framework of product policy or communication
policy.
Sectional fixed costs. These include fixed costs of production. They amount to a
fixed basic sum and, in addition, may depend on the available capacity of
personnel and machines. The same applies to the sales branches in the markets.
Company fixed costs for technical and commercial administration, sales etc.
1.13.4. Depreciation Costs

Depreciation costs occupies a special position.
When single-shift working prevails, aging is the dominant cause of loss of value.
When there are two shifts, the useful working life is reduced because of the
increased wear and tear.
Hence depreciation costs are reported as part of fixed costs.
1.13.5. Stock Value

Goods produced within the company are entered with their variable production costs;
bought-in products are entered with their purchase price.
In the central store in which at time, old stocks, bought-in products, and newly produced
products may be stored, a weighted average value is ascertained.
The method of weighted averages is also used to calculate the value of the stocks in the
sales branches.
Page 26
1.14. Financing
At the start of period 0, all companies possess the same amount of cash. This is reported
in the liquidity account and in the balance sheet.
The List of Parameters defines the minimum amounts of cash that your company must
maintain at the end of a period, and the maximum amount of indebtedness.
All decisions taken by you affect the finances of your company and lead directly or
indirectly to cash inflows and cash outflows.
Directly in the same period: lean production, communication policy, etc.
Directly in the following period: orders of raw materials, machines, etc.
Indirectly e.g. by decisions in the framework of price policy.
In addition, income and expenditure arise e.g. by reinvestment of machine depreciation,
withdrawal from banks of fixed-term deposits, etc.
1.14.1. Procurement of Funding

The companies have several methods of procuring financial resources to cover planned
expenditure:
By selling of manufactured or bought-in products. The turnover of a period is
shown in the balance as accounts receivable and the customers pay in the
following period.
By selling factoring the accounts receivable. This is a means of receiving the cash
in the current instead of the following period. The factoring costs are defined in
the List of Parameters.
By selling used production machines. The book value of these machines is
defined in the List of Parameters.
By reducing of stocks of raw materials and bought-in goods thereby releasing
locked capital.
By utilizing short-term credit (= overdrafts). The overdraft is granted
automatically when your company does not have the minimum amount of cash
at the end of the period. The overdraft is also repaid automatically in the
Page 27

following period. The interest rate for the overdraft is defined in the List of
Parameters.
By raising long-term loans. The interest rate for the long-term loans is defined in
the List of Parameters.
1.14.2. Liquidity and Insolvency

In each period, companies must be in a position to meet their payment obligations, i.e.
expenditure in any period must not exceed the available financial means. Ideally, both
amounts should be equal. While over-liquidity does no more than reduce profitability,
under-liquidity threatens the very existence of the company. Under-liquidity exists when
in any period the financial means are insufficient to cover the planned expenditure.
The maximum debt-equity ratio (credit limit) is defined in the List of Parameters. Your
decisions will constantly and directly affect the debt-equity ratio.
A company is insolvent when the debt-equity ratio equals or is greater than the limit
defined in the List of Parameters.
If a company is insolvent, the course instructors reserve the right to either wind up the
firm or grant a special credit to the firm so that it can continue operations.
The following considerations must be taken into account in liquidity planning:
Taxes due at the end of every period must be paid.
Any dividends also occur as cash outflows at the end of every period.
In every period the basis for the calculation of the debt-equity ratio (credit limit) is
capital resources (ordinary share capital plus reserves, as adjusted for dividend
payouts). At the end of the year in period 4, the basis for the calculation of the
debt-equity ratio is capital resources (ordinary share capital plus reserves, as adjusted
for dividend payouts and further adjusted for any accumulated losses).
Page 28
1.15. Exchanging Currencies

In the Management Report the exchange rates are reported in a style that will, at first,
appear unfamiliar to you, as they are based on the Euro. This is unusual, but essential, as
your companys balance sheet, profit and loss account and financial results will be
expressed in Euro.
You will hence have to use such exchange rates as:
1 USD has a value of approximately EUR 0.7780.
1 CNY has a value of approximately EUR 0.1250.
1 INR has a value of approximately EUR 0.0140.
The effective exchange rates for a period are displayed in the Management Report of the
period.
Page 29
1.16. Summary of the Effect of Influencing Factors

1.16.1. Effect on Demand
Factor
Has affect on
Demand
Price policy
Communication policy
Product policy
Product Quality
Image
Image
Payment of dividends
Training of sales personnel
Continuity of sales prices
Punctual delivery
Page 30
1.16.2. Other Effects
Has affect on
Factor
Total Quality
Management
Lean management
Product Through Fixed Production Staff

Rejection
Quality -put
costs
times per turn-over rate
time per per
unit
unit
period
Production
technology
Continued
training of
personnel
Page 31
2. Decisions
When you have become familiar with the simulated company, you should prepare and
enter the decisions for the next period.
The course instructors will define and tell you of the specific dates and times for the
entering of these decisions for every period.
It is essential that you enter your decisions by this deadline. Otherwise the decisions of
period 0 will be used as your decisions for the next period.
The decisions fall into the following categories:
Company decisions
Lean management
Payment of dividends
Sales decisions
Product policy
Price policy - sales price
Communication policy - advertising, sales promotion
Distribution policy - marketing logistics
Training of sales personnel - key accounts
Sales branches
Transportation
Market research
Purchasing decisions
Market research
Purchase of raw materials
Page 32

Purchase of bought-in goods
Production decisions
Planning of production quantities
Appointment and dismissal of personnel
Purchase or sale of machines
Lean production
TQM (Total Quality Management)
Production technology
Continued training of personnel
Financial decisions
Raising and repayment of long-term loans
Deposits with banks
Export factoring
Exchange rate risk management
Page 33
2.1. Company Decisions

2.1.1. Lean Management
The idea of introducing lean production has long been discussed by the directors of your
company. Outmoded practices that have become fossilized in other sections of the
company have led to the idea being pursued and to the introduction of lean management
techniques to the whole company.
Lean management is a management concept that is aimed at the greatest level of
efficiency in all sections of the company.
Among the major objectives are:
Recognition and fulfillment of customer wishes as the primary goal.
Elimination of superfluous hierarchy levels.
Encouragement of responsibility of personnel.
Decentralization, adoption of personnel into the decision making processes
(downward shift of responsibility).
Greater flexibility through communication and co-operation across sections and
division.
Faster reaction times to changes in the markets.
It is not easy to break up existing structures and to change behavior patterns. Yet lean
management is not a state, or condition, it is a continuous process of effort to increase
the efficiency of the company, even if only in small steps. You too can try to put the ideas
of lean management into practice in your company.
Expenditure invested in this will achieve:
A reduction of throughput time of the products, hence also a reduction of
stocks, more rapid availability in the markets, and a reduction in the amount of
capital tied up.
The total throughput time is first calculated as throughput time + transport and
storage time. In period 0 the values for throughput time could be 32 days and for
Page 34

transport and storage time could be 8 days thus resulting in a total throughput
time of 40 days.
The deliverable part of the current production that can be transported from the
central to the market store is calculated as (length of the period total
through-put time) / length of the period * 100.
Deliverable part = (60 days 40 days) / 60 days = 33.33%
Experts feel that with lean management the throughput time could be reduced
to 15 days. This leads to a total throughput time of 23 days.
This would enable a corresponding increase in the quantity delivered to the
markets in the period.
A reduction of the cost of fixed overheads.
Experts are of the opinion that a 25% reduction of these fixed costs is possible.
2.1.2. Payment of Dividends

The shareholders expect from the companies a dividend as a commensurate return on
their invested capital and their share of the companys success.
Dividend payments at the end of each period improve the companys image, but at the
same time reduce the companys own retained earnings and credit line.
Dividend payments that reduce the companys available capital can lead to critical
discussion in public. This in turn can affect the companys reputation.
Page 35
2.2. Sales Decisions

2.2.1. Market Research
A market research institute can supply information on the competitor companies and
the markets.
Prices for the various reports are defined in the List of Parameters.
Expenses occur in the period in which the decision is taken, the market research reports
are available at the end of the same period.
In the section Sales the following reports can be purchased:
Type 1: Selling prices of all companies in all markets; absolute and relative
deviations of ones own prices from average prices.
Type 2: Expenses relating to sales branches of all companies, total sales of the
products of all companies in the markets, market shares of own company.
Type 3: Sum total of product advertising of all companies for all products in the
markets; market share of own company.
Type 4: Development of the general economic climate as well as specific
developments in the markets.
2.2.2. Product Policy - Product Management

Characteristics required of a product go beyond the basic use desired by the customer.
They also include, for example:
Increased functions, simplification, i.e. fewer parts subject to wear and tear,
repair-friendliness.
Improved design.
Expansion of customer service and extension of guarantee.
Product variations or innovations in order to differentiate products from those
offered by the competition.
Page 36

An integral part of product policy is, in addition to decisions regarding the
range/assortment of products (to begin with, Alesa and Bordo), the planning of new
products.
Expenditure on product policy increases demand in proportion to the degree to which it
exceeds that of the competition. Experts are of the opinion that in this way demand can
be increased by a maximum of 15%.
Improved
customer service
Extended
guarantee
Environmentally
friendly packaging
Basic function
= Basic use
Improved
durability
Attractive
design
Fewer parts subject
to wear and tear
= Repair-friendliness
Page 37
2.2.3. Pricing Policy

Pricing policy attempts to establish a relationship between the selling prices set by a
company and the possible quantity of demand. Price is only one - albeit a very important
- component in a bundle of possible instruments/measures that can be applied to
influence demand. The purchasing decisions of the customers can be influenced
considerably by their experience with the overall efficiency of a company (e.g. punctual
delivery).
If prices are too low, there is a danger of reducing willingness of the customers to buy, as
they could lose faith in the quality of the products.
If prices are set too high, particularly if they are not justified by advertising or quality,
customers may feel tempted to switch to other, cheaper, competing products.
In this sense, the decisions of each individual company, as well as those of the
competition, exert an effect on the demand accruing to each company.
2.2.4. Communication Policy - Advertising, Sales Promotion

Communication policy embraces all the measures a company adopts to inform and to
convince potential clients in the market of the characteristics of the products - such as
technical fields of application, economy, design, etc. They draw attention to the products
of a company and serve to distinguish the products from others on the market, and to
create preferences. Advertising and sales promotion directly affect the number of orders
received by a company - the sum total of all expenditure of all companies influences the
overall total demand. The level of expenditure on it determines the quality of
communication policy. Expenditure is established separately for each product and for
each market.
The effect of communication policy is immediate and there is a fading in the following
periods. It is therefore spread over the current and subsequent periods (carry-over
effect), although the effect steadily declines. The greatest effect arises in the period in
which expenditure occurs.
The List of Parameters defines the rate of fading.
Experience so far indicates that an increase of expenditure over and above 8% of the
previous periods turnover will not lead to any notable further increase in the effect of
communication policy.
Page 38
2.2.5. Distribution Policy - Marketing Logistics

Marketing logistics is understood as the sum of activities adopted in order to be able to
supply or deliver the right goods in the right quantities to the right place.
2.2.5.1. Quantities to be Transported

At the start of each period, the companies decide which quantities of products are to be
transported from the central store to the branch stores.
The following types of finished goods are available for transport to the branch stores:
The stocks available at the start of each period. These are the residual quantities
left over at the end of the previous period.
The deliverable part of the products produced in the same period. This is
dependent on the through-put time.
The bought-in goods delivered in the period. These are the finished goods that
were ordered in the previous period.
You may transport the maximum quantity represented by the total of the three types of
finished goods.
These transport quantities together with the quantities available in the branch stores are
available to meet the demand.
If the transport decisions of the companies exceed the available quantities, the planned
level of transport quantities to the markets are reduced proportionately.
An exchange of stocks between the markets is not possible due to the distances involved.
Return of stocks to the central store is not permitted.
The costs arising from transportation of goods from the central store to the branch stores
are debited in the profit and loss account of the same period.
The transport costs per product and market shown in the List of Parameters are
applicable to small quantities.
In all markets bulk transport is possible, which - depending on the quantities of all
products transported to this market - result in discounts. The discounts are included in
the accounts of the same period.
Page 39
2.2.5.2. Sales Branches

The costs (expenses) of maintaining sales branches are divided into a basic sum (fixed
costs) and a variable sum that must be increased when demand is rising in order to be
able to fulfill completely all tasks, from the acceptance of orders to final delivery. When
demand is declining, reducing expenditure can reduce a sales branch in size.
Hence the expenditure on sales branches represents the capacity of the sales branches to
deliver the orders.
In the case of markets that have not been fully opened up, it is clear that fixed costs will
represent a larger proportion than in those markets that have been supplied for some
time. The fixed costs of the sales branches in the individual markets are given in the List
of Parameters.
The effect of expenditure on reduction or increase in size of the sales branches arises in
the same period. Expenditure on the sales branches may be reduced to the level of the
fixed costs: however, a step as radical as this no longer enables orders to be received and
processed.
Minimum planned expenditure = (planned sales for Alesa + planned sales for Bordo) x
variable costs + fixed costs
2.2.5.3. Training of Sales Personnel - Key Accounts

Technical expertise and motivation of the sales personnel of ones company can be
improved by training in the qualities and possible fields of application of the products, as
well as the required sales techniques. Detailed technical advice and counseling improve
the regard in which the company is held (= image). You might also think of the training
of particularly competent personnel responsible exclusively for looking after key
accounts (key customers) and for the solution of their problems. These members of the
personnel would be specialists in, for example, negotiating, financing, foreign exchange
transactions, risk management, customs law and preference law, export calculation and
export marketing. Additionally, they would be totally familiar with the mentality and
customs of foreign customers.
The effect of sales personnel training on a companys image depends on how far the
training is superior/inferior to that of the competition. Changes in image of up to 5%
seem possible.
Page 40
2.3. Purchasing Decisions

2.3.1. Market Research
Prices and available quantities of raw materials and bought-in goods can change
independently of the general economic situation and other factors. The higher the share
of material costs in manufacturing costs of the products is, the more advisable it is to
keep a close eye on the purchasing markets.
By purchasing market research reports, the companies can gain information on any
trends in good enough time to include such changes in their decisions.
Without market research, the companies will only be informed of changes once they
have already taken place.
2.3.2. Purchase of Raw Material

The level of production per period depends on, among other things, sufficient stocks in
hand and/or prompts ordering of materials. If stock in hand plus materials ordered are
not sufficient for planned production, then machines will be idle.
The purchase of raw materials entails a delivery period of one period. Raw material can
also be purchased through a rush, or urgent, order. Material ordered in this way can be
made available in the same period. Of course, costs for rush orders are higher than in the
case of normal orders. Surcharges for rush orders are entered in the value of stocks.
The material is paid for on delivery.
Prices for materials are given in the List of Parameters.
2.3.3. Purchase of Bought-in Goods

To relieve pressure on their own production plant, companies can buy in finished Alesa
and Bordo. They are delivered directly to the central store.
The goods ordered have a delivery period of one period and the payment is on delivery.
Quantities available on the market are, as a rule, sufficient to supply the companies.
Delivery prices are shown in the List of Parameters.
Page 41
2.4. Production Decisions

2.4.1. Planning of Production Quantities
In each period the companies establish the planned production quantities of the
products, these quantities are limited by the capacity available in that period.
To adapt production capacity to demand, the introduction of overtime is permissible.
Management expressly orders overtime, and the planned amount expressed in total
machine hours for the whole period is entered in the decisions sheet.
The decision is valid for one period, and is effective directly. No more than 2 machine
hours of overtime are allowed per working day.
Overtime working leads to an increase in production wages. The increase is the overtime
surcharge defined in the List of Parameters. It also increases the variable production
costs, among other things through necessary overtime working in auxiliary sections, but
does not affect the depreciation per period as the latter is regarded as determined by
aging.
Overtime must not be used for more than two consecutive periods. After that, at least
one period must be without overtime.
The introduction of a second shift is possible, too, but only for the whole production
section, not just individual machines. This doubles production capacity but then requires
the hiring and induction of a corresponding number of new workers.
Double-shift work and overtime working are not permitted at the same time.
The introduction of the second shift requires one period of preparation. Hence it cannot
begin until the period after the one in which the decision to introduce it has been taken.
Double-shift production immediately increases:
Production wages by the extra payment for shift work.
The fixed costs of the section and the company.
The depreciation per period, as the useful working life is shortened.
Cancellation shift work takes effect immediately. However, the increased fixed costs
remain for the whole period as a result of residual costs.
Page 42
2.4.2. Appointment and Dismissal of Personnel

Appointments are possible at the commencement of each period. Newly appointed
personnel undergo induction/training in the first three months (= 1 period) of their
employment, receiving full pay while they do so, but during this time they do not
contribute to output.
The appointment of a new employee requires a fixed sum for such expenses as job
advertisement, interview, and similar.
It is also possible for employees to hand in their notice, or be given their notice, in each
period. Dismissals take effect one period after notice has been given.
Employees who have been given notice of dismissal remain fully available to the
companies during the period of notice. The dismissal is effective at the start of the next
period. They can no longer be actually employed in the period when their dismissal
becomes effective. For social reasons, they receive severance pay on leaving the company.
Companies that frequently dismiss personnel must take into account that, as a result of
the resultant poor reputation of the company, job advertisements in future periods will
not attract sufficient applicants.
2.4.3. Sale and Purchase of Machines

Purchase of machines may take place in any period, in order to expand production
capacity. Only whole machines can be purchased.
Machines ordered have a delivery/installation time of one period. Payment is made on
delivery.
Companies can reduce their production capacity and hence the fixed assets by selling
production plant. Proceeds from the sale of machines are usually lower than the book
value.
The decision to sell machines has an immediate effect.
The capacity of machines sold is no longer available in that period.
The proceeds are calculated as cash inflow in the same period.
The profit and loss account is debited with any loss in the same period.
Page 43
2.4.4. Lean Production

2.4.4.1. Total Quality Management (TQM)
It is no longer sufficient to regard quality as the fulfillment of minimum standards, as
todays commercial world is characterized by ever increasing competitive expectations.
Today, quality is seen as an all-embracing concept. It includes products and personnel,
but also all the companys procedures from planning and draft projects, production,
through to marketing and distribution.
In traditional quality control, errors arising at the planning stage are not discovered until
it is too late: but later the discovery, the more expensive it is to rectify the error.
A modern all-embracing system of quality control has the aim of:
Recognizing errors at the earliest possible stage, or even better Not letting them occur at all.
Expenditure on TQM (e.g. the formation of quality circles, quality system certification,
and so on) enables you to:
Reduce the rejection rate of faulty products. These rejects cannot be re-used.
Improve the quality of products produced in your company.
Rising expectations of the customers and the efforts of the competitors require each
company to pay increasing attention to quality and to efforts to improve it.
Experts expect that an increase in product quality up to 15% can be achieved by these
measures.
2.4.4.2. Production Technology

Through investment in superior technology, but particularly through a rigorous
structuring of logistic process, an improved flow of information, and the utilization of
value analysis, kanban, etc. a continuous process of improvement can be achieved.
On the basis of exhaustive analyses, experts are of the opinion that a considerable
cost-reduction potential can be realized in production. Specifically, such measures can
bring about a reduction of the production time per unit, up to a maximum of 20%.
Page 44
2.4.4.3. Continued Training of Personnel

TQM and lean production presuppose qualified and motivated personnel. The latter
must be willing to work in semi-autonomous groups, to accept changing work demands,
and to take on responsibility. They then enable the dismantling of superfluous levels of
hierarchy.
Programs for the continued training of the work force represent expenditure that results
in:
A reduction of the fixed costs in production.
A reduction of staff turnover and non-reusable rejects.
A shorter production time per unit.
It is doubtful whether expenditure in this direction of more than Euro 4,000 per
person/period is sensible.
Page 45
2.5. Financial Decisions

2.5.1. Raising Short-term and Long-term Loans
Within certain limits, companies can obtain short-term and long-term loans. The sum
total of indebtedness must not exceed a certain proportion of the companys own capital.
Short-term loans (overdrafts) do not have to be specifically applied for. Any needed
overdraft is credited automatically at the end of the period.
Short-term loans are automatically paid back in the following period.
Long-term loans, on the other hand, do have to be applied for. The amount applied for is
available in the same period. The rate of interest for long-term loans is, as a rule, more
favorable than for overdrafts. Long-term loans are not subject to a time limit.
Long-term loans may be paid back in part or in total. To do either, it is necessary to
enter your decision the notice to repay the debt(s). Redemption takes place in the
following period.
2.5.2. Fixed-term Deposits with Banks

If a company does not wish to use all available funds in a period, it can make its financial
surplus available to the money market and invest it on an interest-bearing basis.
These deposits are invested in the same period in which the decision to do so is taken.
This investment is always on a short-term basis for two periods.
2.5.3. Export Factoring

It is possible to arrange for the collection of all accounts receivable from customers in all
markets through the services of a factoring company. Thus, return on turnover in the
period of sale immediately becomes cash inflow.
The decision to use export factoring is entered separately for each market. It covers the
entire accounts receivable of the market cannot be used for a part of the accounts
receivable.
The fees (including interest and del credere) are given in the List of Parameters. The
account in the markets is paid at the forward rate of the pertinent period.
Page 46
2.5.4. Exchange Rate Fixing

Sales activities in the export markets are conducted in foreign currencies. The forward
and spot rates for the pertinent period are documented in the Management Report. The
forward rate is the rate at which 90-day forward buying can be conducted. This means
that the companies have the following alternatives:
At the conclusion of the sales contracts (e.g. in period n) the foreign exchange
due to be received by the companies 90 days later (period n+1) can be sold at the
forward rate. The proceeds from such a transaction are received by the
companies at the fixed rate of period n.
Currency transactions of this nature give the companies a certain protection
against exchange rate risk, but the commission, brokerage etc involved cost some
proportion of the amount receivable.
If no forward buying transaction is conducted, receipts of foreign currency paid
by customers in the period n+1 will be converted at the then valid spot rate.
The spot rate of the period n+1 can, and as a rule will, deviate from both the spot
rate of period n and from the forward rate of period n+1. Depending on whether
the spot rate of period n+1 is higher or lower, exchange rate losses or profits will
accrue.
Page 47
3. Annexes
Please note that these sample calculations are given to you only to show you the method
of calculation and may not represent the actual values of any period.
Capacity calculation
Calculation of manufacturing costs
Determining the change in stock value
Cell background colors are used in all the following tables to denote different type of
cell values.
Color
Meaning
Value from the Management Report
Value from the List of Parameters
Calculated value = cell with a formula
The sample tables are individual tables of a single spreadsheet. Hence there are cells
that are linked to values from other tables so that values that have been input or
calculated in one table are used in the following tables.
Page 48
3.1. Capacity Calculations

Capacityavailable
Numberofmachinesavailable
175 machines
Workinghours/day
8 hours
Workingdays/period
60 days
Totalcapacityavailable
84,000 machinehours
Fullytrainedworkersavailable
350 workers
Machineallocation
2 workers/machine
Capacityrequired
Productionquantity
Productiontime
Capacityrequired
Alesa
96,000 units
Bordo
36,000 units
Alesa
45 minutes/unit
Bordo
20 minutes/unit
Alesa
72,000 machinehours
Bordo
12,000 machinehours
Totalcapacityrequired
84,000 machinehours
Machinesrequired
175 machines
Fullytrainedworkersrequired
350 workers
Capacitysurplus/deficit
available
required
surplus/deficit
Machines
175
175
0 machines
Workers
350
350
0 workers
Page 49
3.2. Calculation of Manufacturing Costs

Productionquantity
Productiontime
Capacityrequired
Alesa
Bordo
96,000
36,000
45
20
72,000
12,000
Total
units
minutes/unit
machinehours
Totalcapacityrequired
84,000 machinehours
Machinesrequired
175 machines
Fullytrainedworkersrequired
350 workers
Productionwage
16.00 EUR/hour
Totalproductionwages
2,688,000.00 EUR
Effectiveproductionwage
Rawmaterialsrequired/unit
32.00 EUR/hour
Alesa
Bordo
Cost
Aurit
units
12.00
Bekat
2 units
24.00
2 units
25.00
Calot
Costofrawmaterials
Alesa
Aurit
36.00
0.00 EUR/unit
Bekat
24.00
48.00 EUR/unit
Calot
Bordo
0.00
50.00 EUR/unit
Totalcostofrawmaterials
60.00
98.00 EUR/unit
Othervariableproductioncosts
40.00 EUR/hour
Productioncosts
Alesa
Bordo
Productionwages
24.00
10.67 EUR/unit
Rawmaterial
60.00
98.00 EUR/unit
Othervariableproductioncosts
30.00
13.33 EUR/unit
Productioncostsbeforerejects
114.00
Rejectionrate
5.00%
Productioncostsafterrejects
120.00
122.00 EUR/unit
10.00%
135.56 EUR/unit
The wages of workers who are receiving training or cannot be productively employed
due to poor utilization of capacity are included in the fixed costs.
Page 50
3.3. Determining the Change in Stock Value

Stock value changes occur if within a period the value of the product quantities either
produced or bought in does not correspond to the value of the product quantities sold.
This is the normal case. In this, there are the following possibilities:
Stock value increases, i.e. the value of the product quantities produced or bought
in exceeds the value of the quantities sold. Stock increases are considered as
proceeds.
Stock value decreases, i.e. the value of the product quantities produced or bought
in is lower than the value of the goods sold. Stock decreases are counted as
expenditure.
For products actually produced by the company are concerned, only the variable
production costs are included in the calculation of stock values.
The fixed costs as well as all sales costs are calculated as expenditure in the period in
which they arise and are not included in the calculation of the stock values.
For the following calculations the values are assumed for the finished goods in the central
store and in the branch stores at the beginning of the period are:
Alesa
EUR 120.00 per unit
Bordo
EUR 134.00 per unit
Page 51
3.3.1. In the Central Store

Alesa
Quantity
Value
units
EUR/unit
Initialstock
65,000
120.00
Deliveryfromproduction
91,200
120.00
Deliveryofboughtingoods
Totalstock
10,944,000.0
0
0.00
156,200
Stockvalue/unit
120.00
Transferredtobranchstores
94,000
120.00
Finalstock
62,200
120.00
Changeinstock
2,800
Bordo
336,000.00
Quantity
Value
units
EUR/unit
Initialstock
26,000
134.00
Deliveryfromproduction
32,400
135.56 4,392,144.00
Deliveryofboughtingoods
Totalstock
0.00
58,400
Stockvalue/unit
134.87
Transferredtobranchstores
31,500
134.87
Finalstock
26,900
134.87
Changeinstock
900
144,003.00
Page 52
3.3.2. In the Branch Store Germany

Alesa
Initialstock
Quantity
Value
units
EUR/unit
2,000
120.00
Deliverybytransferfromcentralstore
35,000
120.00
Totalstock
37,000
Stockvalue/unit
Decreasebysales
Finalstock
Changeinstock
Bordo
120.00
36,000
1,000
120.00 4,320,000.00
120.00
1,000
120,000.00
Quantity
Value
units
EUR/unit
1,500
134.00
14,000
134.87
Totalstock
15,500
Initialstock
Stockvalue/unit
Decreasebysales
Finalstock
Changeinstock
134.79
15,000
500
1,000
134.79 2,021,850.00
134.79
133,605.00
Page 53
3.3.3. In the Branch Store U.S.A

Alesa
Initialstock
Quantity
Value
units
EUR/unit
1,500
120.00
23,000
120.00
Totalstock
24,500
Stockvalue/unit
Decreasebysales
Finalstock
Changeinstock
Bordo
Initialstock
Totalstock
120.00
24,000
500
Finalstock
Changeinstock
120.00
1,000
120,000.00
Quantity
Value
units
EUR/unit
1,600
134.00
9,000
134.87
10,600
Stockvalue/unit
Decreasebysales
120.00 2,880,000.00
134.74
10,000
600
1,000
134.74 1,347,400.00
134.74
133,556.00
Page 54
3.3.4. In the Branch Store China

Alesa
Initialstock
Quantity
Value
units
EUR/unit
1,500
120.00
17,000
120.00
Totalstock
18,500
Stockvalue/unit
Decreasebysales
Finalstock
Changeinstock
Bordo
120.00
18,000
120.00
500
120.00
1,000
Quantity
Value
units
EUR/unit
2,000
134.00
3,500
134.87
Totalstock
5,500
Stockvalue/unit
Finalstock
Changeinstock
2,160,000.00
120,000.00
Initialstock
Decreasebysales
2,040,000.00
472,045.00
134.55
5,000
134.55
500
134.55
1,500
672,750.00
200,725.00
Page 55
3.3.5. In the Branch Store India

Alesa
Initialstock
Quantity
Value
units
EUR/unit
3,000
120.00
19,000
120.00
Totalstock
22,000
Stockvalue/unit
Decreasebysales
Finalstock
Changeinstock
Bordo
120.00
21,000
120.00
1,000
120.00
2,000
Quantity
Value
units
EUR/unit
2,800
134.00
5,000
134.87
Totalstock
7,800
Stockvalue/unit
Finalstock
Changeinstock
2,520,000.00
240,000.00
Initialstock
Decreasebysales
2,280,000.00
674,350.00
134.56
7,500
134.56
300
134.56
2,500
1,009,200.00
334,832.00
Page 56
3.3.6. Change in Stock Value

Alesa
Bordo
Centralstore
336,000.00
144,003.00
191,997.00 EUR
Total
BranchstoreGermany
120,000.00
133,605.00
253,605.00 EUR
BranchstoreU.S.A.
120,000.00
133,556.00
253,556.00 EUR
BranchstoreChina
120,000.00
200,725.00
320,725.00 EUR
BranchstoreIndia
240,000.00
334,832.00
574,832.00 EUR
Total
936,000.00
658,715.00
1,594,715.00 EUR
Page 57

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iBizSim: International Business Simulations

International Business Simulations

iBizSim BM 7 Learning Phase

iBizSim: International Business Simulations

1.10. Terms of Payment...............................................................................19

iBizSim: International Business Simulations

1.14.1. Procurement of Funding........................................................................27

1.15. Exchanging Currencies......................................................................29

2.2. Sales Decisions.......................................................................................36

2.2.5.1. Quantities to be Transported..........................................................................39

2.3. Purchasing Decisions............................................................................41

2.4. Production Decisions...........................................................................42

2.4.4.1. Total Quality Management (TQM)...............................................................44

2.5. Financial Decisions...............................................................................46

iBizSim: International Business Simulations

2.5.1. Raising Short-term and Long-term Loans.............................................46

iBizSim: International Business Simulations

raw materials and bought-in goods - invoices are drawn up in Euro.

iBizSim: International Business Simulations

1. The Business Simulation iBizSim

iBizSim: International Business Simulations

1.2. Organization of the Management Team

iBizSim: International Business Simulations

iBizSim: International Business Simulations

1.3. Management Tasks

iBizSim: International Business Simulations

Optimal stock holding, high degree of utilization of capacity,

Short and long term profitability, low level of debt, self

Optimal satisfaction of customer demand, favorable image,

In the social sphere: Contented workforce, continuity of employment even when

iBizSim: International Business Simulations

1.5. Analysis and Evaluation of Data - Setting up Indices

iBizSim: International Business Simulations

iBizSim: International Business Simulations

1.6. Methodology for Decision Making

Analyze management information

iBizSim: International Business Simulations

1.7. The Products

iBizSim: International Business Simulations

1.8. The Markets

iBizSim: International Business Simulations

1.9. Development of Demand

1.9.3. Demand for Alesa and Bordo in the Markets

iBizSim: International Business Simulations

1.9.4. Effects of Inability to Deliver

iBizSim: International Business Simulations

iBizSim: International Business Simulations

1.10. Terms of Payment

iBizSim: International Business Simulations

iBizSim: International Business Simulations

1.12.1. Personnel Capacity

iBizSim: International Business Simulations

1.12.2. Machine Capacity

iBizSim: International Business Simulations

iBizSim: International Business Simulations

1.12.3. Sequence for Purchase, Production and Sale

iBizSim: International Business Simulations

1.13.1. Variable Production Costs

1.13.2. Variable Marketing Costs

1.13.3. Fixed Costs

iBizSim: International Business Simulations

1.13.4. Depreciation Costs

1.13.5. Stock Value

iBizSim: International Business Simulations