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iBizSim: International Business Simulations

iBizSim01: BM 2 P1

User Manual

© 2005-2009 by Prof. Dr. Ashok N. Ullal, Hoelderlinstrasse 13, 72127 Kusterdingen, Germany

iBizSim: International Business Simulations

iBizSim01: BM 2 P1

Note: This document has been formatted for double-sided printing.

© 2005-2009 by Prof. Dr. Ashok N. Ullal, Hoelderlinstrasse 13, 72127 Kusterdingen, Germany

iBizSim: International Business Simulations
1 The International Business Simulation iBizSim01
1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17

iBizSim01: BM 2 P1

1 1 5 5 9 9 10 12 12 13 14 14 15 16 17 18 20

Structure and progression of the International Business Simulation iBizSim01 Tasks and organization of the team Company policy Analysis and evaluation of data - setting up the indices The products The markets The development of demand Conditions of payment Image Production Personnel capacity Machine capacity Timetable for purchase, production and sale of products Costs Financing Exchanging currencies Summary of the effect of influencing factors


2.1 2.2 2.3 2.4 2.5 Company decisions Sales decisions Purchasing decisions Production decisions Financial decisions

22 23 27 28 31


3.1 3.2 3.3 Capacity calculation for period 0 Calculation of manufacturing costs in period 0 Determining the change in stock value in period 0

34 35 36

© 2005-2009 by Prof. Dr. Ashok N. Ullal, Hoelderlinstrasse 13, 72127 Kusterdingen, Germany

iBizSim: International Business Simulations

iBizSim01: BM 2 P1

© 2005-2009 by Prof. Dr. Ashok N. Ullal, Hoelderlinstrasse 13, 72127 Kusterdingen, Germany

Professor emeritus. Ashok N. Dr. the profit and loss account. Dollar (USD) China Chinese Yuan (CNY) India Indian Rupee (INR) The balance sheet. Ullal. School of International Business.A..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 Currency Germany Euro (EUR) U. Reutlingen University. Dr. 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. has a production plant initially in Germany. Ullal. U.S. Ashok N. the simulated company that you will manage: Purchases Produces Transports Sells raw materials and bought-in goods . In the International Business Simulation iBizSim01 used in this course. 72127 Kusterdingen.A. The course emphasizes strategic planning and controlling and expects the students to use in a very integrated manner their knowledge and experience from all the other business-related courses. © 2005-2009 by Prof. Germany . China and India. Germany.S. Hoelderlinstrasse 13. and the financial account will all be drawn up in Euro. U.invoices are drawn up in Euro goods in the Germany . The simulated company is located in Germany. Germany. manufactures initially two consumer products and sells these in four markets.iBizSim: International Business Simulations PREFACE Page I This course is based on the International Business Simulation iBizSim01 of the series iBizSim: International Business Simulations developed by Prof.S.


The structure of the production plant. and hence also of their employees.1 Structure and progression of the International Business Simulation iBizSim01 Several companies in a particular branch of industry are in competition with each other. It shows the economic and operating state of the company at the close of period 0. 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. i. The products Alesa and Bordo will be described in detail below. In order to reflect this trend adequately. Each company manufactures the products it supplies. all the information which is necessary for managing the company. Hence the simulation is based on the application of general business principles. Hoelderlinstrasse 13. each company makes the decisions that are to apply in this period. Dr. decisions are made on which the future success or failure of companies. outgoing and incoming payments. your team will now decide how your company is to be run. each management team can see the consequences of its decisions. The report constitutes the basis of the decisions for the subsequent period. The simulation is played in chronological periods. will be found in the enclosed Management Report.e. In industrial life. This forces the management to delegate important duties to senior colleagues who in turn have to search for joint solutions. The decisions of all the companies are processed in a computer program. sales and turnover in all markets. depend: in the same way. every four of which constitute a financial year. but there exists the possibility of buying in these goods. in order to establish a rational basis for subsequent optimal decisions. 1. The products are generalized consumer goods. At the start of each period.2 Tasks and organization of the team The amount of information and knowledge necessary for the successful running of a company is continually increasing. One of the tasks of the company’s management team is to analyze the reports and to ascertain the interrelationships. and in addition there are inter-sectional problems and projects. Ashok N. Hence the willingness of every participant to work in a team is necessary. stocks of goods and cash. Your team will take over the management of one of the companies competing with each other. Ullal. all the companies have the same opening situation. and the results of each period are printed out for each company in a Management Report. They supply the products Alesa and Bordo in different markets that are independent of each other. in the International Business Simulation iBizSim01 all business functions are exercised by working groups (= teams). The decisions necessary for this will be made at the start of each © 2005-2009 by Prof.iBizSim: International Business Simulations 1 The International Business Simulation iBizSim01 Page 1 1. From this report. 72127 Kusterdingen. as well as the factors involved. Germany . Specific experience from particular branches of industry is therefore not necessary for taking part in the simulation.

It might therefore be appropriate to allocate to the members of the teams tasks that are unfamiliar to them from the point of view of their training or activity in their company.g.iBizSim: International Business Simulations Page 2 period. Dr. Hoelderlinstrasse 13. If in the simulation. and a major part of the point of participating in the simulation will be lost. Ensure the long-term viability of the company In principle.g. 2. one still encounters a certain friction between e. Finally. whereas a director of sales is responsible for production. Not infrequently. The owners of your company expect you to out-perform the companies that are in competition with you. as well as any departmental empire-building. between personnel in production and those in sales etc. every team must be able to reach a group decision: this means that agreement must first be reached on how the final decisions are to be made (e. finances. the group could prepare the decisions of the teams for subsequent discussion. a production engineer takes over the marketing section. 72127 Kusterdingen. Achieve a satisfactory level of profitability 3. If participants from the same real-life company find themselves in the same team. If a member of the team. based on a lack of knowledge of the tasks and problems that other colleagues have to cope with. In the areas of responsibility formed in this way. then a certain mutual understanding can be developed which will help to overcome friction in the company. Germany . production) to individual team members. for example. © 2005-2009 by Prof. there is little point in transferring the familiar hierarchical chain of command to the simulation. Ashok N. in the interest of effective decision-making in the given time per period. However. engineers and personnel in the financial departments. a blinkered approach. then motivation will die. the internal organization and allocation of responsibilities is left to the teams themselves. It is your task to: 1. However. Ullal. 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 developing. Improve the market position of the company 2. by unanimous vote or by majority vote). you should nevertheless take into account the following points when distributing the tasks: 1. it has proved to be a good idea to allocate specific functions (for example in sales. in real life in a high position.

72127 Kusterdingen. Ullal. Germany . © 2005-2009 by Prof. Dr. Hoelderlinstrasse 13. remember that it is important for every member of the team to be involved as much as possible in reaching the decisions. Ashok N.iBizSim: International Business Simulations Page 3 Whatever organization you choose.

Analysis of the results © 2005-2009 by Prof. Absatz der Erzeugnisse product Supply and sales of the auf unterschiedlichen Märkten in different Markets Market 1 Market 2 Market 3 Market 4 5. Germany . 72127 Kusterdingen. Setting the goals of the company Planning of strategic and operational measures 2. Ashok N. Hoelderlinstrasse 13. Dr. Production and/or purchase of a range of certain products e.iBizSim: International Business Simulations Page 4 Management Tasks 1.g Alpha Beta 4. Ensuring the availability of the necessary Raw materials Bought-in/semifinished goods Staff capacity Machinecapacity Capital 3. Ullal.

Moreover. The following summary will provide you with examples of business objectives: In production: Optimal stockholding. the easily determinable factors "company profit“ or "profitability“ are selected as a measure of success and hence of "ability“. and constant ability to supply the goods. high yield on capital. a discussion of these widely varying objectives and the resultant conflict of objectives must not be omitted. the purpose of which is to achieve the stated objectives. could be examined: © 2005-2009 by Prof. In the social sphere: Contented workforce. they will expect the establishment of measures (strategy). Ashok N. distribution of high profits. low level of debt. high turnover. When taking part in the simulation. In the analysis and processing of the data. In finance: Short-term and long-term profit maximization. high degree of utilization of capacity. even if the developing competitive ethos of the team means that. steady growth. minimal staff turnover. favorable image. and gives each management team an overview of the success and situation of its company. as a rule. for example. minimization of costs. A careful analysis will show whether changes have occurred in the various areas. Hoelderlinstrasse 13. Ullal. has become familiar with the company and what is happening on the market. and if so which changes. the following points. The company is not rigidly bound to the policy established at the start of the simulation: however. Dr.4 Analysis and evaluation of data . After your team. identification of employees with the company. the owners will expect a clear statement of future long-term company policy.setting up the indices The Management Report provided to you showing the opening situation and subsequently printed out at the end of each period provides a wealth of data. as the new management.3 Company policy Page 5 One of your tasks in taking part in the simulation will be to develop your own ideas and objectives and to carry them through against the interests of the competing companies. In marketing: Optimal satisfaction of customer demand. 1.iBizSim: International Business Simulations 1. high market share. self-financing. continuity of employment even when there are fluctuations in sales. It will be advisable to consider what information can be represented by indices/statistics that are particularly meaningful and that should be regularly drawn up. any deviations from it need to be discussed and justified in the final discussion. Germany . an even utilization of capacity. high quality. 72127 Kusterdingen.

Ashok N. What factors can cause the deviations? 8. Meaningful information could be supplied by relative figures.iBizSim: International Business Simulations Page 6 1. indices cannot be more precise than the base data/figures on which they rest. Dr. what long-term measures are there to eradicate the bottlenecks? What. As a matter of principle. How is the progression of the curve of the diagrams to be interpreted? 6. personnel costs in period 1 / personnel costs period 0). What effect does expenditure on communication policy have in the markets? 11.g.g. Which data should be collected in tabular form over several periods. What deviations from the planned or expected course of events are discernible? 7. difference and/or change in demand in each market). Germany . They provide relationships in the form of ratios between sets and sub-sets in the same period (e. therefore. © 2005-2009 by Prof. The reference of essentially different figures (e. Which data are suitable for graphical representation? 5. What effects do price changes have on demand in the markets? 10. and the ratio/relationship that exists between them. you are advised to use only the few essential figures as your indices.g. the share of material costs in total costs. Hoelderlinstrasse 13. or extrapolated? 4. Ullal. Which of the indices appear really fundamental and should thus have particular attention paid to them? 3. Particularly in commercial practice. 72127 Kusterdingen. Index figures between essentially similar but chronologically dissimilar figures (e. In which areas of the company do bottlenecks exist? How significant are they? What short-term measures can be taken to optimize utilization. is to be done? 2. How sensitive to these factors is the situation? 9.

planned balance DECISION Analysis of results comparison of actual/planned figures © 2005-2009 by Prof. 72127 Kusterdingen. Germany . Ashok N. Ullal. Dr. including planning of alternatives if necessary Purchasing plan Production plan (Investment and personnel plan) Sales plan Finance plan Agreement on and adjustment of individual plans Cost plan Yield plan Development of results plan planned profit and loss account. Hoelderlinstrasse 13.iBizSim: International Business Simulations Page 7 Methodology of Decision-Making Analysis of the past Evaluation of Management Reports over time Current situation Analysis of results of the current Management Report Purchase of market information Type 1 Type 2 Type 3 Forecast of future developments Collection of future-orientated data Purchase of market information Type 4 Business situation and trends reported by Game Leaders Acquisition of management information Processing of management information Planning of measures.

Ashok N. Hoelderlinstrasse 13.iBizSim: International Business Simulations Page 8 The Decision Cycle in the Management Game Setting out/ adaptation of objectives Analysing results Etablishment/ adaptation of strategy Decision Obtaining and evaluation of information Assessing alternatives Planning measures/ planning alternatives Development of and agreement on individual plans © 2005-2009 by Prof. Germany . 72127 Kusterdingen. Ullal. Dr.

are equal in quality to one’s own production. Bordo has been available in the markets for several periods and to date has fulfilled all expectations. their selling prices and sales figures are identical for all companies. to reflect ever more sophisticated requirements . They are the pre-requisites for opening up and © 2005-2009 by Prof. Germany .6 The markets The products Alesa and Bordo are supplied on four geographically separate global markets. Germany. Bordo meets the high demands of the discerning consumer with high spending-power. Ullal. There is no competition between Alesa and Bordo as substitutes.A. All companies compete in these markets.thanks to strict quality control measures . China and India. Dr. but require different production times per unit.iBizSim: International Business Simulations 1.S. offered on all four markets. Cooperation between companies is not possible. and that to differing degrees. as follows: 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.. Alesa is a product that has been available in the markets for several years and has developed into a main generator of turnover. but there are no further suppliers. It has earned high praise from consumer test associations and in technical journals etc. So far the markets have been only partially opened up. Both products may be bought in. 72127 Kusterdingen. has been largely retained. • 1. Hoelderlinstrasse 13. was considered a major innovation. Sales branches have been set up in all markets. Bordo is a mature product that corresponds to state-of-the-art technology. U. At the start of the simulation. by introducing minor improvements and adaptations. From time to time. which.5 The products Page 9 Your company’s sales range comprises the products Alesa and Bordo. The well-tried and tested basic concept. as finished goods which . which may be produced within your company or be bought in. when it was originally introduced.S. are durable consumer goods. Ashok N. attempts have been made. The products Alesa and Bordo.but this has not prevented the interest of potential customers turning to newer products. .particularly in the markets Germany and U. It is up to each company to decide in which markets it wishes to supply its goods. Alesa and Bordo may be characterized as follows: • They are manufactured partly from the same raw materials. partly from different ones. The markets are different in size and structure.A.

Hoelderlinstrasse 13. a permanent presence on the markets is hence obligatory. there have been various predictions of the development in subsequent periods. The reputation (= image) of the company. The decisions of the company 2.iBizSim: International Business Simulations Page 10 supplying the markets. the sales position of the individual companies can and will deviate from the general situation in the overall markets. the trend of the general economic environment in all markets remains the same. 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”. special significance attaches to the companies’ sales policy decisions. To date. storage and dispatch.7. 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. The companies attempt to build up long-term business relationships in the markets. Factors specific to particular markets 5. 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 in one period. The general economic environment 4. 1. to © 2005-2009 by Prof. Customer demand for the products of a company is determined by 1. customer care. Germany . even when the situation on the market does not allow for costs to be covered on a short-term basis. The transport of products to the various markets causes different costs (see list of parameters).7. 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 customers’ orders. Ullal. They fulfill all necessary functions such as processing estimates/offers and orders. The decisions of competing companies 3. 1. after-sales service.2 Decisions As at the start of the simulation the products of all the companies are the same.7 The development of demand 1. Hence. Their aim is to firmly establish the name of the products and of the company in the consciousness of potential customers. Ashok N. The closing down of individual sales branches is not permissible. 72127 Kusterdingen. Dr. service back-up.1 General In the first periods.

3 Demand for Alesa and Bordo in the markets Alesa and Bordo develop differently on the markets. the product can be considered as being in the mature stage. and with a slight time-lag also in the U. have been able to do the same. i. Alesa was introduced a long time ago in Germany and not long afterwards in the U. i.e.S. However. for some time now turnover in Germany has been stagnating. Germany . 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. To begin with.4 Effects of inability to deliver If a company cannot satisfy demand. applies to the competition. 72127 Kusterdingen. if the demand in a specific period and in a specific market exceeds the supply. In both markets Alesa achieved high turnover figures and great success. In Germany and the U. 1. and last but not least to increase demand and sales at "reasonable" prices. Dr. offering comparable products.A. Hence. lower turnover growth rates are expected.S. This. In line with declining interest on the part of potential customers. replacement sales will continue but will decline in the long run.7. 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. These developments can be influenced considerably by the companies’ decisions. Bordo. Competing companies.7. leading to higher demand. Hoelderlinstrasse 13. the level of personal preferences for Alesa in these markets must be expected to decline or disappear. has in the meantime reached a high degree of saturation. 1.S. Alesa was introduced in China and India at a considerably later date. Market resistance is forecast to grow particularly in Germany. Bordo was introduced into China and India only at a later date: higher turnover growth rates can be expected in these markets. Ashok N. also applies to the comparable products of the competition.A. however.S. In these markets.e. as the product is increasingly accepted by customers. In this.A. On the other hand. the sales situation of the individual companies can. deviate from the general situation on the total markets.A. the following scenarios may develop: © 2005-2009 by Prof.A. In this.. and will. as a technically high-quality product. The correct application of sales policy instruments has enabled the establishment of a loyal group of regular customers. in which potential customers are particularly receptive to new ideas.A. Ullal. even the U. was initially particularly interesting for Germany and the U. Alesa’s situation in Germany is likely to become more critical than in the U. The forecasts are only valid while the economic situation remains constant.iBizSim: International Business Simulations Page 11 create a competitive advantage for their own products. A continuous observation of the markets and their developments will improve the level of information of the companies.S.S. This trend will gradually accelerate. But this. For the coming periods pessimistic forecasts predict a considerable decline in demand in Germany. as experience shows. upswings and downswings will increase or decrease the expected quantities. too.

Such accounts receivable in a foreign currency are converted into Euros at the exchange rate valid in that period. Punctual delivery of goods ordered: © 2005-2009 by Prof. Limited ability to deliver prejudices the image of the company. Any exchange rate profits or losses are then indicated in the profit and loss account of the subsequent period. 72127 Kusterdingen. 1. By adopting the following measures. They cancel orders in part or in total. Hoelderlinstrasse 13. Ashok N. are influenced by. The companies establish standards that . If the exchange rates are not forward fixed. Cultivating this reputation can lead to an indirect influencing of customers. It is difficult to win back in subsequent periods those customers who have drifted away as a result of this loss of image.provide the best performance. The competing companies in proportion to their sales meet the unsatisfied demand. among other things.8 Conditions of payment The conditions of payment provide a basic value date of 90 days for sales in the markets. Ullal. image.e. Dr. By "image" we mean the sum total of all factors that contribute to the public reputation of a company. the accounts receivable must be entered at the forward rate. Germany . 2.9 Image The market position of the companies.iBizSim: International Business Simulations Page 12 1. 1. and thus also buyer behavior. Non-fulfilled orders are stored and hence increase the orders in hand of the following period. It is assumed that at the start of the simulation payments from the export markets are made to the company’s head office in accordance with the contract. The customers are patient and wait for late delivery at the start of the next period. and to considerable favorable side-effects on the promotions side. in the following period.from the point of view of the customers . Turnover figures are indicated in the balances of the pertinent periods as accounts receivable. the accounts receivable are entered on the assets side at the spot rate. Customers are not prepared to accept delivery delays. i. If exchange rates are forward fixed. companies can encourage the desired favorable attitude of the public: 1. 2. 3. Factoring is possible (see “financial decisions“). The damage to the image increases in proportion to the inability to satisfy the demand in that period. There are two possibilities: 1.

Buying in finished units of Alesa 6. Bekat and Calot and are produced in one stage. all companies enjoy the same image. surplus demand occurs with unfavorable consequences for the company. 4. On the other hand. companies whose prices are subject to major increases/decreases within one period. a poor image can result in a major reduction in the demand for the products of a company. Hoelderlinstrasse 13. These products consist of different raw materials Aurit. This puts the motivation and the qualifications of the sales personnel at a premium. Improvement of quality: 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. It is calculated separately for each market in each period. Continuity of prices: Customers show annoyance with. 1. and lose faith in.iBizSim: International Business Simulations Page 13 Punctual delivery is a strong sales argument.10 Production The production program to be set up based on the means of production comprises the products Alesa and Bordo. Changing the machine stock by sale or purchase of machines 4. 3. Changing the number of personnel by appointments or dismissals 5. It therefore does not improve the regard in which a company is held.taken for granted by customers. The image of the companies affects the level of demand for their products: a good image can increase demand. Adaptation of working time by introducing overtime (maximum 2 consecutive periods) Introduction/cancellation of a second shift 3. If demand is lower than the supply of products available. failure to provide punctual delivery damages the company’s reputation and worsens its image in proportion to the degree to which demand in the market cannot be met. Ullal.rightly . 72127 Kusterdingen. At the start of the simulation. it is possible to achieve a balance between demand on the markets and the necessary capacity by: 1. This factor has the value of 100. Damage to image exerts an effect in the following period. Germany . Production for stock 2. 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. Ashok N. Buying in finished units of Bordo If demand exceeds available supplies of the products. © 2005-2009 by Prof. As far as the financial position permits. They can be achieved by the training of sales personnel. Dr. 2. or whose prices fluctuate greatly between periods. It is .

The level of personnel is given in the Management Report. 1.iBizSim: International Business Simulations Page 14 stockpiling is inevitable. it also ties up cash. Agreements with the trade unions permit overtime working in two consecutive periods. After that. 72127 Kusterdingen.12 Machine capacity The number of machines available in any period is shown in the Management Report. the number of personnel must be doubled to avoid machines standing idle. the company has available a workforce for production. at least one period must be worked without overtime. but not the shutdown of production. At the start of the simulation. The machines are all the same. this workforce is sufficient for the full operation of the machines available. Germany . Companies may reduce the workforce by dismissals If the pool of labor is insufficient to operate the existing machines and to produce the planned quantity of goods. Trained personnel can be employed in each shift. The capacity of each machine is ⇒ Per working day (with normal shifts) 8 machine hours © 2005-2009 by Prof. The pool of labor decreases by a certain natural wastage per period (see Management Report) 2. whose number is basically determined by capacity. In addition. The production quantity is then reduced by a percentage corresponding to the shortfall of labor. Company policy permits a reduction of capacity to 50 machines and the appropriate number of personnel. and similar) that is absolutely essential for maintaining the company’s operations. are included in the fixed costs. Wages and salaries of these employees. In the event of the introduction of double-shift working. These are in detail: 1. one must reckon with machines standing idle. Ashok N. Additional personnel can be hired to maintain the company’s productive capacity or in a phase of expansion 3. While this increases the ability to supply products. as the working day of any one individual employee must not exceed 10 hours including overtime. No employee may work a double shift. Managers may arrange a maximum of 2 hours overtime per day. Companies can increase the qualifications of their production personnel by expenditure on employees’ continued training. Dr. Ullal. 1. Hoelderlinstrasse 13. This pool of "productive" labor can be influenced by management decisions and also by other factors. skilled tradesmen.11 Personnel capacity Every company has a basic provision of personnel (technical and commercial administration.

The variable production costs (without depreciation) are calculated per machine hour and are given in the parameter list. The companies reinvest in each period the same amount that is calculated as depreciation. The useful working life of the machines is fixed in the parameter list.iBizSim: International Business Simulations ⇒ Per working day (with overtime) ⇒ Per working day (with double shifts) 10 machine hours 16 machine hours Page 15 Each period covers one quarter with 60 working days. a part of the quantity produced in can be delivered on the markets in the same period. Market 4 © 2005-2009 by Prof. Hoelderlinstrasse 13. Depending on the through-put time. The products Alesa and Bordo make different demands on production capacity. In period 0. Ordering of raw materials Delivery of materials Material stocks Market 1 Production of goods Market 2 Central store Delivery of bought-in goods Ordering of goods to be bought in Transport to the branch stores in the markets and possibly delivery to customers Market 3 100 % of the bought-in goods delivered in one period can be made available for delivery to customers in the same period. 72127 Kusterdingen. Ullal. production and sale of products Period n Period n + 1 100 % of the raw material delivered in any period can be processed. Germany . Ashok N.13 Timetable for purchase. 1. This means that depreciation does not exert an effect on the capacity of the company’s production departments. the production times are ⇒ For 1 unit of Alesa ⇒ For 1 unit of Bordo 45 minutes 20 minutes These production times may be influenced by lean production and by the continued training of production personnel. The linear depreciation figures are calculated in each period as costs. Dr.

in the framework of product policy or communication policy ⇒ Sectional fixed costs. are calculated as fixed costs.iBizSim: International Business Simulations 1. These include fixed costs of production.e. a shortening of the production time per unit. the costs can be categorized as follows: Page 16 1. 72127 Kusterdingen.3 Fixed Costs These are the costs that result from the degree of operational readiness of the company. e. as a rule they remain constant per hour of production and hence per unit of production. They are designated “variable marketing costs“. may depend on the available capacity of personnel and machines. sales etc.e. Germany .14. 1. These costs. i. These costs are not regarded as a single "monolithic block“ of fixed costs.14. The costs per unit will only change as a result of price changes for raw materials. Into this category fall ⇒ Transport costs ⇒ Variable costs of the sales branches. Ullal. Ashok N. © 2005-2009 by Prof. Dr.2 Variable Marketing Costs Those costs that depend on the quantity of goods transported or sold. in addition. They amount to a fixed basic sum and.14 Costs For the purposes of costing.1 Variable Production Costs Those costs that depend on the quantity of goods produced.g. are basically independent of the quantity of goods produced. The same applies to the sales branches in the markets. and similar.14. i. They are designated “variable production costs“. dependent on real time (fixed costs). It is assumed that these costs rise proportionally to the utilization of capacity. 1. the introduction of overtime or of a second shift. but rather are subdivided as follows: ⇒ Product fixed costs. Into this category fall the costs of: ⇒ Production materials ⇒ 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. personnel not required in that period. Hoelderlinstrasse 13. ⇒ Company fixed costs for technical and commercial administration.

as well as the maximum amount of indebtedness.e.4 Depreciation Depreciation occupies a special position. and newly produced products may be stored. the useful working life is reduced because wear and tear then becomes the major cause (otherwise the useful life would remain the same as in single-shift operation). i. 1. Germany .14. All decisions taken by company management affect the financial sphere and lead directly or indirectly to cash in-flows and cash out-flows ⇒ Directly in the same period: lean production. old stocks. a weighted average value is ascertained. the turnover of a period. Dr. 1. communication policy. Ashok N. ageing is the dominant cause of loss of value. bought-in products. all companies possess the same amount of cash: this can be ascertained both in the framework of the liquidity account and in the final balance. is shown in the balance as accounts receivable. by decisions in the framework of price policy In addition.5 Stocks Goods produced within the company are entered with their variable production costs. machines.g. Hence depreciation figures are fixed costs. 1.iBizSim: International Business Simulations 1. bought-in products are entered with their purchase price. etc ⇒ Indirectly e. etc ⇒ Directly in the following period: orders of raw materials. The parameters state the minimum amounts of cash at the end of a period.g. etc.15. In the central store.1 Procurement of funding The companies have the possibility of procuring financial resources to cover planned expenditure ⇒ From the sale of manufactured or bought-in products (money owed to the company. Ullal. in which at any one time. Page 17 ⇒ When there are two shifts. ⇒ When single-shift working prevails.15 Financing At the start of period 0.14. income and expenditure inevitably arise by e. 72127 Kusterdingen. withdrawal from banks of fixed-term deposits. these are paid by customers in the following period) ⇒ From the sale of accounts receivable (factoring) ⇒ From the sale of used production machines (disinvestments) ⇒ Reduction of stocks of raw materials and bought-in goods © 2005-2009 by Prof. Hoelderlinstrasse 13. re-investment of machine depreciation. Depreciation is nonetheless calculated as part of the fixed costs. A weighted average value is also calculated for stocks in the sales branches.

Ullal. Ashok N.0170 © 2005-2009 by Prof. Thus the overdraft credit of the liquidity account corresponds to the short-term obligations shown in the balance. Hoelderlinstrasse 13. expenditure in any one period must not exceed the available financial means. the instructors running the business simulation reserve the right to ⇒ Wind up the firm. Dr.7700 ⇒ 1 CNY has a value of approximately EUR 0. under-liquidity threatens the very existence of the company. companies must be in a position to meet their payment obligations. Germany . as they are based on the Euro. In every period the basis for the calculation of the debt-equity ratio (credit limit) is capital resources (ordinary share capital plus reserves. Under-liquidity exists when in any one period the financial means are insufficient to cover the planned expenditure. In addition. but essential. profit and loss account and financial results will be expressed in Euro. the basis for the calculation of the debt-equity ratio is capital resources (ordinary share capital plus reserves. This is unusual. as adjusted for dividend payouts).0930 ⇒ 1 INR has a value of approximately EUR 0. The maximum debt-equity ratio (credit limit) is given in the list of parameters.e. as adjusted for dividend payouts and further adjusted for any accumulated losses). At the end of the year in period 4.15. any necessary short-term borrowed capital (within the limits of permissible indebtedness) is raised through overdraft facilities and repaid in the following period. 72127 Kusterdingen. or ⇒ Grant a special credit to the firm. Ideally. 1.2 Liquidity In each period. You will hence have to use such exchange rates as: ⇒ 1 USD has a value of approximately EUR 0. at first. If a company is insolvent. but only allow it to continue to play “outside the competition“. you decide on the raising of long-term loans. both amounts should be equal. appear unfamiliar to you. 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 expenditure at the end of every period. as your company’s balance sheet. or their level.16 Exchanging currencies In the Management Report the data will. Underliquidity exists when the credit limit for covering capital requirements is insufficient. While over-liquidity does no more than reduce profitability. Within these limits.iBizSim: International Business Simulations ⇒ Interest yield from fixed-term deposits with banks ⇒ Raising short-term credit (= overdrafts) ⇒ Raising long-term loans Page 18 1. i.

iBizSim: International Business Simulations Page 19 At the start of each period. Dr. Ullal. Ashok N. Germany . you will be notified of the exchange rates that would be applicable for that period. 72127 Kusterdingen. © 2005-2009 by Prof. Hoelderlinstrasse 13.

Ullal.17 Summary of the effect of influencing factors Page 20 Has affect on Factor Demand Image Throughput time per unit Fixed costs per period Production time per unit Staff turnover Rejection rate Price policy Communication policy Product policy Total Quality Management Image Payment of dividends Training of sales personnel Continuity of sales prices Punctual delivery Lean management Production technology 2000 Continued training of personnel © 2005-2009 by Prof. Germany .iBizSim: International Business Simulations 1. Hoelderlinstrasse 13. Ashok N. 72127 Kusterdingen. Dr.

iBizSim: International Business Simulations 2 Decisions Page 21 When the management teams have become familiar with the strengths and weaknesses of the companies. It is absolutely essential to abide by this deadline. 72127 Kusterdingen. Germany . Ashok N. Dr. sales promotion • Distribution policy .sales price • Communication policy . The decisions fall into the following categories: • Company decisions • Lean management • Payment of dividends • Sales decisions • Product policy • Price policy .marketing logistics • Training of sales personnel . The Simulation Leaders will establish and notify you of a specific date and time for the submission of these decisions.key accounts • Sales branches • Transportation • Market research • Purchasing decisions • Market research • Purchase of raw materials • 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 © 2005-2009 by Prof. as otherwise the decisions of the immediately preceding period will be used again. they reach the decisions for the next period. Hoelderlinstrasse 13.advertising. Ullal.

more rapid availability in the markets. 72127 Kusterdingen.33% of the production quantity was available to satisfy the demand in the same period when the following figures applied: throughput time 32 days + + transport and storage time = 8 days = total throughput time 40 days This figure of 33. In period 0. Ullal. Hoelderlinstrasse 13.1 Company decisions 2. 33.1 Lean Management The idea of introducing lean production has long been discussed by the directors of your company.33% is calculated as follows: Deliverable part of finished goods = (length of the period – total through-put time) / length of the period. Dr. or condition.1. Expenditure invested in this will achieve: a) A reduction of throughput time of the products. adoption of personnel into the decision making processes (downward shift of responsibility) ∗ Greater flexibility through cross-sectional communication and co-operation ∗ Faster reaction times to changes in the markets It is not easy to break up existing structures and to change behavior patterns. Ashok N. the figures could be reduced to throughput time 15 days + + transport and storage time = 8 days = total throughput time 23 days © 2005-2009 by Prof. Germany . Lean management is a management concept that is aimed at the greatest level of efficiency in all sections of the company. Experts feel that. it is a continuous process of effort to increase the efficiency of the company. Among the major objectives are: ∗ Recognition and fulfillment of customers’ wishes as the primary goal ∗ Elimination of superfluous hierarchical levels ∗ Encouragement of responsibility of personnel ∗ Decentralization.iBizSim: International Business Simulations • Raising and repayment of long-term loans • Deposits with banks • Export factoring • Exchange rate risk management Page 22 2. Outmoded practices that have become fossilized in other sections of the company have led to the idea being pursued and to the transfer of lean management techniques to the whole company. You too can try to put the ideas of lean management into practice in your company. hence also a reduction of stocks. even if only in small steps. with lean management. Yet lean management is not a state. and a reduction in the amount of capital tied up.

iBizSim: International Business Simulations Page 23 This would enable a corresponding increase in the quantity delivered to the markets in any one period. repair-friendliness. ∗ Type 3: Sum total of product advertising of all companies for all products in the markets. Germany .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 company’s success. total sales of the products of all companies in the markets. b) A reduction of the cost of fixed overheads Experts are of the opinion that a 25% reduction of these fixed costs is possible.1. 2.e. ∗ Type 4: Development of the general economic climate as well as specific developments in the markets. simplification. ∗ Type 2: Expenses relating to sales branches of all companies. Dr. 72127 Kusterdingen. Ullal.2. market share of own company. for example: ∗ Increased functions. market shares of own company. 2. i. this in turn can affect the company’s reputation. Ashok N. Hoelderlinstrasse 13.product management Characteristics required of a product go beyond the basic use desired by the customer: they also include. Dividend payments at the end of each period improve the company’s image. 2. © 2005-2009 by Prof.2 Sales decisions 2. absolute and relative deviations of one’s own prices from average prices. the market research reports are submitted at the end of the same period. Prices for the various reports can be seen in the parameter lists. ∗ Improved design. Dividend payments that reduce the company’s available capital can lead to critical discussion in public.2.1 Market research A market research institute can supply information on the competitor companies and the markets. Expenses occur in the period in which the decision is taken. fewer parts subject to wear and tear. In the section "Sales" the following reports can be supplied: ∗ Type 1: Selling prices of all companies in all markets.2 Product policy . but at the same time reduce the company’s own capital and credit line.

Page 24 ∗ Product variations or innovations in order to differentiate products from those offered by the competition. An integral part of product policy is. 72127 Kusterdingen. the planning of new products. Dr.iBizSim: International Business Simulations ∗ Expansion of customer service and extension of guarantee. Ashok N. in addition to decisions regarding the range/assortment of products (to begin with. Experts are of the opinion that in this way demand can be increased by a maximum of 15%. Ullal. Alesa and Bordo). Germany . Hoelderlinstrasse 13. Expenditure on product policy increases demand in proportion to the degree to which it exceeds that of the competition. © 2005-2009 by Prof.

If prices are too low. the decisions of each individual company. Dr. particularly if they are not justified by advertising or quality. In this sense. customers may feel tempted to switch to other. punctual delivery).component in a bundle of possible instruments/measures that can be applied to influence demand. as they could lose faith in the quality of the products. Price is only one . 72127 Kusterdingen. there is a danger of reducing customers’ willingness to buy. cheaper. Ullal. as well as those of the competition. exert an effect on the demand accruing to each company. The purchasing decisions of the customers can be influenced considerably by their experience with the overall efficiency of a company (e.iBizSim: International Business Simulations Page 25 Improved customer service Extended guarantee Environmentally friendly packaging Basic function = Basic use Improved durability Fewer parts subject to wear and tear = Repair-friendliness Attractive design 2. Hoelderlinstrasse 13.2. Germany . If prices are set too high.3 Pricing policy Pricing policy attempts to establish a relationship between the selling prices set by a company and the possible quantity of demand.g. © 2005-2009 by Prof. Ashok N. competing products.albeit a very important .

etc. plus ⇒ The bought-in goods delivered in the same period may be dispatched and delivered to customers in the markets together with the quantities available in the branch stores.such as technical fields of application. Advertising and sales promotion directly affect the number of orders received by a company .2. The level of expenditure on it determines the quality of communication policy. Dr. Germany . The effect of communication policy is immediate and there is a fading in the following periods.iBizSim: International Business Simulations 2. Ullal. Expenditure is established separately for each product and for each market. The parameter list indicates the degree of loss of effect.advertising. economy.4 Communication policy . although the effect steadily declines. Experience so far indicates that an increase of expenditure over and above 8% of the turnover will not lead to any notable further increase. The greatest effect arises in the period in which expenditure occurs. sales promotion Page 26 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 . Hoelderlinstrasse 13.depending on the quantities © 2005-2009 by Prof. 2. They draw attention to the products of a company and serve to distinguish the products from others on the market.1 Quantities to be transported At the start of each period. 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. It is therefore spread over the current and subsequent periods (carry-on effect). the companies decide which quantities of products are to be transported from the central store to the branch stores. Ashok N. and to create preferences. plus ⇒ Part of the products produced in the same period (the proportion of the products available in each period for transportation and sale is dependent on the production time and through-put time). The transport costs per product and market shown in the list of parameters are applicable to small quantities.the sum total of all expenditure of all companies influences the overall total demand. From the central store ⇒ The stocks available there at the start of each period. An exchange of stocks between the markets is not possible due to the distances involved.5 Distribution policy . which . the planned level of transport quantities to markets 1 to 4 are reduced proportionately. In all markets bulk transport is possible.2. Return of stocks to the central store is not permitted.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. 72127 Kusterdingen. design.2.5. If the transport decisions of the companies exceed the available quantities. 2.

Ashok N. a step as radical as this no longer enables orders to be received and processed.key accounts Technical expertise and motivation of the sales personnel of one’s company can be improved by training in the qualities and possible fields of application of the products. The fixed costs of the sales branches in the individual markets are given in the list of parameters. foreign exchange transactions.result in discounts (see list of parameters). © 2005-2009 by Prof.2.3 Purchasing decisions 2. risk management.5. Detailed technical advice and counseling improve the regard in which the company is held (= image). 2. for example. The discounts are included in the accounts of the same period. Changes in image of up to a maximum of 10% seem possible. In the case of markets that have not been fully opened up. When demand is declining. Hence the expenditure on sales branches represents the capacity of the sales branches to deliver the orders. as well as the required sales techniques. Germany . negotiating. 72127 Kusterdingen. the more advisable it is to keep a close eye on the purchasing markets.3 Training of sales personnel . Hoelderlinstrasse 13. 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. Minimum planned expenditure = (planned sales for Alesa + planned sales for Bordo) x variable costs + fixed costs 2.1 Market research Prices and available quantities of raw materials and bought-in goods can change independently of the general economic situation and other factors. Dr. 2.iBizSim: International Business Simulations Page 27 of ALL products transported to THIS market . The effect of expenditure on reduction or increase in size of the sales branches arises in the same period. from the acceptance of orders to final delivery. These members of the personnel would be specialists in. they would be totally familiar with the mentality and customs of foreign customers.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. it is clear that fixed costs will represent a larger proportion than in those markets that have been supplied for some time. The effect of sales personnel training on a company’s image depends on how far the training is superior/inferior to that of the competition. financing.5. Ullal. Additionally. customs law and preference law.2. export calculation and export marketing. reducing expenditure can reduce a sales branch in size. Expenditure on the sales branches may be reduced to the level of the fixed costs: however.3. The higher the share of material costs in manufacturing costs of the products is.

order. If stock in hand plus materials ordered are not sufficient for planned production. these quantities are limited by the capacity available in that period. Overtime must not be introduced for more than two consecutive periods. The decision is valid for one period. The introduction of a second shift is possible.3. too. but only for the whole production section. The material is paid for on delivery. Quantities available on the market are. then machines will be idle. Dr. Hoelderlinstrasse 13. or urgent.iBizSim: International Business Simulations Page 28 By acquiring market research reports. the introduction of overtime is permissible. sufficient stocks in hand and/or prompts ordering of materials. After that. Without market research. To adapt production capacity to demand.4. costs for rush orders are higher than in the case of normal orders (see list of parameters). not just individual machines: this doubles production capacity but then requires the hiring © 2005-2009 by Prof. 2. Surcharges for rush orders are entered in the value of stocks. as a rule. Germany . the companies will only be informed of changes once they have already taken place. Material ordered in this way can be made available in the same period. among other things. No more than 2 machine hours of overtime are allowed in any one working day. and the planned amount expressed in machine hours is entered in the decisions sheet.3 Purchase of bought-in goods To relieve pressure on their own production plant. 2. The goods ordered have a delivery period of one period and the payment is on delivery. 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 ageing (see list of parameters). Delivery prices are shown in the list of parameters. Raw material can also be purchased through a rush. The purchase of raw materials entails a delivery period of one period.2 Purchase of raw material The level of production per period depends on.3. companies can buy in finished Alesa and Bordo. the companies can gain information on any trends in good enough time to include such changes in their decisions. Prices for materials are given in the list of parameters. Of course. at least one period must be without overtime. Ashok N. sufficient to supply the companies. Management expressly orders overtime. Overtime working leads to an increase in production wages: the increase is the overtime surcharge (see list of parameters). 2. Ullal. They are stored in the central store. and is effective directly.4 Production decisions 2. 72127 Kusterdingen.1 Planning of production quantities In each period the companies establish the planned production quantities of the products.

For social reasons. as the useful working life is shortened. job advertisements in future periods will not attract sufficient applicants.2 Appointment and dismissal of personnel Appointments are possible at the commencement of each period. The appointment of a new employee requires a fixed sum (see parameter list) for such expenses as job advertisement. It is also possible for employees to hand in their notice. ⇒ The capacity of machines sold is no longer available in that period © 2005-2009 by Prof. Employees who have been given notice of dismissal remain fully available to the companies during the period of notice. ⇒ The fixed costs of the section and the company. Proceeds from the sale of machines are usually lower than the book value (see list of parameters). interview. Companies that frequently dismiss personnel must take into account that. but during this time they do not contribute to output.4. they can no longer be actually employed in the period when their dismissal becomes effective. However. ⇒ The depreciation per period. the increased fixed costs remain for the whole period as a result of residual costs. Machines ordered have a delivery/installation time of one period. in each period. Only whole machines can be purchased.4. Shift work and overtime working are not permitted at the same time. Newly appointed personnel undergo induction/training in the first three months (= 1 period) of their employment. they receive severance pay on leaving the company (see list of parameters). 2. Ashok N. 2. hence it cannot begin until the period after the one in which the decision to introduce it has been taken. receiving full pay while they do so. They are dismissed at the start of the next period. Dismissals take effect one period after notice has been given. i. Ullal. i. as a result of the resultant poor reputation of the company.e. Cancellation shift work takes effect immediately. and similar.iBizSim: International Business Simulations Page 29 and induction of a corresponding number of new workers.3 Sale and purchase of machines Purchase of machines may take place in any period. or be given their notice. The introduction of the second shift requires one period of preparation. Payment is made on delivery.e. Dr. All companies can reduce their production capacity and hence the fixed assets by selling production plant. Double-shift production immediately increases: ⇒ Production wages by the extra payment for shift work. The decision to sell machines has a direct effect. 72127 Kusterdingen. in order to expand production capacity. Germany . Hoelderlinstrasse 13.

through to marketing and distribution.4. errors arising at the planning stage are not discovered until it is too late: but the later the discovery.4. Expenditure on TQM (e.4.2 Production technology Through investment in superior technology. They then enable the dismantling of superfluous levels of hierarchies. On the basis of exhaustive analyses. but also all the company’s procedures from planning and draft projects.4 Lean Production 2. experts are of the opinion that a considerable cost-reduction potential can be realized in production. kanban. Optimists expect that an increase of image of up to 15% can be achieved by these measures. The latter must be willing to work in semi-autonomous groups. It includes products and personnel.4. In traditional quality control.4. or .1 Total Quality Management (TQM) It is no longer sufficient to regard quality as the fulfillment of minimum standards.3 Continued training of personnel TQM and lean production presuppose qualified and motivated personnel. and so on) enables you to ⇒ Reduce the rejection rate of faulty products (which can not be re-used) and ⇒ Improve the image of your company. Germany . "quality" is seen as an all-embracing concept. Ullal. as today’s commercial world is characterized by ever increasing competitive expectations. etc A continuous process of improvement can be achieved. A modern all-embracing system of quality control has the aim of ⇒ Recognizing errors at the earliest possible stage.iBizSim: International Business Simulations ⇒ The proceeds are calculated as income in the same period ⇒ The profit and loss account is debited with any loss in the same period. Today. to accept changing work demands. but particularly through ⇒ Rigorous structuring of logistic process ⇒ Improved flow of information ⇒ Utilization of value analysis. and to take on responsibility. Specifically. such measures can bring about a reduction of the production time per unit. 2.even better ⇒ Not letting them occur at all. Programs for the continued training of the work force represent expenditure that results in ⇒ A reduction of the fixed costs in production © 2005-2009 by Prof. up to a maximum of 20%. the more expensive it is to rectify the error. Ashok N. Hoelderlinstrasse 13. production. quality system certification.4. Dr. 2.4. 72127 Kusterdingen. Page 30 2.g. the formation of quality circles.

5.1 Raising short-term and long-term loans Within certain limits. return on turnover in the period of sale immediately becomes income. do have to be applied for.4 Exchange rate fixing Sales activities in the markets are conducted in foreign currencies. Ullal.5. This means that the companies have the following alternatives: I. Hoelderlinstrasse 13. Short-term loans (overdrafts) do not have to be specifically applied for. Ashok N. it is necessary to enter in the decision sheet the notice to repay the debt(s). These deposits are invested in the same period. Redemption takes place in the following period. The account in the markets is paid at the forward rate of the pertinent period. more favorable than for overdrafts. The sum applied for is available in the same period. The rate of interest for long-term loans is. Thus. 2. Page 31 It is doubtful whether expenditure in this direction of more than 2. This investment is always on a short-term basis for two periods.2 Fixed-term deposits with banks If a company does not wish to use all available funds in any one period.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. Long-term loans may be paid back in part or in total. 2.5. At the conclusion of the sales contracts (e. as a rule. 72127 Kusterdingen.5. it can make its financial surplus available to the money market and invest it on an interest-bearing basis (see parameter list). The forward rate is the rate at which 90-day forward buying can be conducted.000 Euro per capita/period is sensible. The fees (including interest and del credere) are given in the list of parameters. The proceeds from such a transaction are received by the © 2005-2009 by Prof. 2. companies can obtain short-term and long-term loans. 2.5 Financial decisions 2. Long-term loans. in which the decision to do so is taken. Long-term loans are not subject to a time limit. Germany . To do either. on the other hand. The sum total of indebtedness must not exceed a certain proportion of the company’s own capital.iBizSim: International Business Simulations ⇒ A reduction of staff turnover and non-reusable rejects ⇒ A shorter production time per unit.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. Dr. The forward and spot rates for the pertinent period will be notified to you.

II. In this. deviate from both the spot rate of period n as well as the forward rate of period n+1. The spot rate of the period n+1 can. Depending on whether the spot rate of period n+1 is higher or lower. 72127 Kusterdingen. Ullal.iBizSim: International Business Simulations Page 32 companies at the fixed rate of period n.5% of the amount receivable. brokerage etc involved cost some 0. exchange rate losses or profits will accrue to the companies. Currency transactions of this nature give the companies a certain protection against exchange rate risk. i.e.If no forward buying transaction is conducted. but the commission. and as a rule will. © 2005-2009 by Prof. Germany . on the agreed date. Ashok N. it is assumed that the payment will be made in accordance with the provisions of the sales contract. Dr. Hoelderlinstrasse 13. receipts of foreign currency paid by customers in the period n+1 will be converted at the then valid spot rate.

Ullal. Hoelderlinstrasse 13.iBizSim: International Business Simulations 3 Annexes • Capacity calculation • Calculation of manufacturing costs • Determining the change in stock value Page 33 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. 72127 Kusterdingen. Dr. Ashok N. © 2005-2009 by Prof. Germany .

000 machine hours Page 34 Fully trained workers available Machine allocation 350 workers 2 workers / machine Capacity required Production quantity Alesa Bordo Production time Alesa Bordo 96.000 machine hours 84. Ullal.1 Capacity calculation for period 0 Capacity available Number of machines available Working hours / day Working days / period Total capacity available 175 machines 8 hours 60 days 84.000 machine hours 12.000 units 45 minutes / unit 20 minutes / unit Capacity required Alesa Bordo 72. • or cannot be productively employed due to poor utilization of capacity are included in the fixed costs. Hoelderlinstrasse 13. © 2005-2009 by Prof. 72127 Kusterdingen.000 units 36. Germany .000 machine hours Total capacity required Machines required Fully trained workers required 175 machines 350 workers Capacity surplus/deficit available Machines Workers 175 350 required surplus/deficit 175 350 0 machines 0 workers The wages of workers who • are receiving training.iBizSim: International Business Simulations 3. Dr. Ashok N.

72127 Kusterdingen.00 EUR 32.00 EUR / unit 24. Dr.00 30.00% 135.00 Bordo 0.2 Calculation of manufacturing costs in period 0 Alesa Production quantity Production time Capacity required Total capacity required 96.00 EUR / unit 48. Ashok N.000 machine hours Page 35 Machines required Fully trained workers required Production wage Total production wages Effective production wage 175 machines 350 workers 16.000 45 72.67 EUR / unit 98.00 EUR / unit Other variable production costs 40.00% 120.00 EUR / unit 10. Germany .00 60.00 0.00 EUR / unit 25.00 EUR / hour Production costs Production wages Raw material Other variable production costs Production costs before rejects Rejection rate Production costs after rejects Alesa 24.000 Bordo 36.000 Total units minutes / unit machine hours 84. Hoelderlinstrasse 13.00 5.00 EUR / unit 50.00 Bordo 10.00 24.iBizSim: International Business Simulations 3.00 EUR / unit 13.00 114.00 EUR / unit Cost of raw materials Aurit Bekat Calot Total cost of raw materials Alesa 36.00 EUR / hour Raw materials required / unit Aurit Bekat Calot Alesa 3 1 Bordo units 2 units 2 units Cost 12. Ullal.000 20 12.33 EUR / unit 122.56 EUR / unit © 2005-2009 by Prof.000.00 60.00 EUR / unit 98.00 EUR / hour 2.688.

00 per unit © 2005-2009 by Prof. Stock decreases are counted as expenditure.00 per unit EUR 134. ⇒ Stock decreases. Hoelderlinstrasse 13. only the variable production costs are included. The fixed costs as well as all sales costs are calculated as expenditure in the period in which they arise. As far as products actually produced by the company are concerned. At the beginning of period 0 the value of the finished goods in the central store and in the branch stores is: Alesa Bordo EUR 120. In this.e. 72127 Kusterdingen.iBizSim: International Business Simulations 3. i. Germany . the value of the product quantities produced or bought in exceeds the value of the quantities sold. i. there are the following possibilities: ⇒ Stock increases.3 Determining the change in stock value in period 0 Page 36 Stock 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. Stock increases are considered as proceeds.e. This is the normal case. Ashok N. the value of the product quantities produced or bought in is lower than the value of the goods sold. Dr. Ullal.

003.744.00 7.800. Ullal.000 32.400 58.000.87 7.464.144.00 144.3.200 120.000.00 120.400 134.628.00 120.87 134.200 -2.900 900 134.00 18. Hoelderlinstrasse 13.876.248.484.00 Page 37 Bordo Quantity units Value EUR / unit 134.00 Total value EUR 7.00 0.00 10.000. Dr.00 4.944.000.1 In the central store Alesa Quantity units Initial stock Delivery from production Delivery of bought-in goods Total stock Stock value / unit Transferred to branch stores Final stock Change in stock 94.00 -336.000.800 156.200 Value EUR / unit 120. Ashok N.000. 72127 Kusterdingen.000. Germany .00 11.144.500 26.000 91.iBizSim: International Business Simulations 3.405.00 120.392.00 3.00 Initial stock Delivery from production Delivery of bought-in goods Total stock Stock value / unit Transferred to branch stores Final stock Change in stock 26.00 0.00 4.000 62.00 135.280.00 65.87 31.56 Total value EUR 3.00 © 2005-2009 by Prof.003.

000.180.00 67.00 36.000.00 4.000 Bordo Quantity units Value EUR / unit 134.850.395. 4.79 2.iBizSim: International Business Simulations 3.000 35.320.000.00 -133. Germany .089.00 134. Dr.87 Total value EUR 201.00 -120.500 134.00 120.000 15.000.000 120.888.00 120.00 120.180.440.79 134.000 -1.00 120.000.00 © 2005-2009 by Prof.500 14.00 Alesa Initial stock Delivery by transfer from central store Total stock Stock value / unit Decrease by sales Final stock Change in stock 2.00 2.000 134.00 Initial stock Delivery by transfer from central store Total stock Stock value / unit Decrease by sales Final stock Change in stock 1.79 15.000 37. Ullal.00 Total value EUR 240.000 500 -1.200.000 1.00 1. Ashok N. 72127 Kusterdingen.605.00 4. Hoelderlinstrasse 13.2 In the branch stores Page 38 • Branch store Germany Quantity units Value EUR / unit 120.

347.600 134.00 © 2005-2009 by Prof.00 -133.000.760.000. Dr.213.844.428.00 1.00 Alesa Initial stock Delivery by transfer from central store Total stock Stock value / unit Decrease by sales Final stock Change in stock 1.74 134.600 9.00 Total value EUR 180.000 10.00 -120.A.00 24.00 Initial stock Delivery by transfer from central store Total stock Stock value / unit Decrease by sales Final stock Change in stock 1.00 134.000. Hoelderlinstrasse 13.556. Quantity units Value EUR / unit 120.000 134.74 1.00 2.00 120.74 10.00 80.940.00 1.000.000 24.000.880.500 Bordo Quantity units Value EUR / unit 134.00 120.400. 72127 Kusterdingen. Ullal.500 23.000.iBizSim: International Business Simulations Page 39 • Branch store U.400.87 Total value EUR 214.00 2.00 120.00 60.000 600 -1.830. Ashok N.00 2. Germany .000 500 -1.000 120.230.S.

Germany .55 672.00 120.500 134.500 Bordo Quantity units Value EUR / unit 5.55 134.00 740.00 120.00 Total value EUR 180.00 67.000 18. Hoelderlinstrasse 13.000.00 -200.000 500 -1.000.00 -120.500 120. Ashok N.045.750.000.00 134. Dr.045.500 5.000.00 2.iBizSim: International Business Simulations Page 40 • Branch store China Quantity units Value EUR / unit 120.00 60.00 2.000 3.000 500 -1. 72127 Kusterdingen.00 18.00 2.040.87 Total value EUR 268.00 472.00 Alesa Initial stock Delivery by transfer from central store Total stock Stock value / unit Decrease by sales Final stock Change in stock 1.00 120.000.00 Initial stock Delivery by transfer from central store Total stock Stock value / unit Decrease by sales Final stock Change in stock 2.00 © 2005-2009 by Prof.160.725.500 134. Ullal.

800 134.00 21.000 1.200.350.00 120.00 © 2005-2009 by Prof. Germany .00 120.368.00 120.00 1.000 19.000.56 7.00 -240.009.000 Bordo Quantity units Value EUR / unit 134.500 134.500 300 -2.000. Ullal.520.000.iBizSim: International Business Simulations Page 41 • Branch store India Quantity units Value EUR / unit 120.550.00 Initial stock Delivery by transfer from central store Total stock Stock value / unit Decrease by sales Final stock Change in stock 2.56 40.00 2.000.00 120.640. Hoelderlinstrasse 13.832.800 5.000.00 -334.00 674.00 2. Ashok N.00 2.00 Alesa Initial stock Delivery by transfer from central store Total stock Stock value / unit Decrease by sales Final stock Change in stock 3.000 -2. 72127 Kusterdingen.87 Total value EUR 375.049.00 Total value EUR 360.000 22.000 120.56 134. Dr.000 7.280.00 134.

000. 72127 Kusterdingen.00 EUR -253.715.00 Bordo 144.A.00 -133.832. Ashok N.997.000. Germany . Ullal.832.715.003.00 EUR -253.00 -240.00 EUR -1.00 -120.00 EUR -320.00 Total -191.00 -936.725.00 EUR -574.00 -200.3 Stock changes Alesa Central store Branch store Germany Branch store U.000.605.00 -334.594.iBizSim: International Business Simulations 3.725.00 -658.000.00 -120.00 EUR Page 42 © 2005-2009 by Prof.3.00 -120. Hoelderlinstrasse 13. Branch store China Branch store India Total -336.000.00 -133.S. Dr.556.605.000.556.

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