user manual learning phase

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iBizSim:International Business Simulations

International Business Simulations

User ManualiBizSim BM 7 Learning Phase

2014 by Prof. Dr. Ashok N. Ullal, Hoelderlinstrasse 13, 72127 Kusterdingen, Germany Page 1


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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.....................................................................161.9.1. General........................................................................................................16

1.9.2. Decisions....................................................................................................16

1.9.3. Demand for Alesa and Bordo in the Markets........................................161.9.4. Effects of Inability to Deliver...................................................................17

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

1.11. Image.....................................................................................................20

1.12. Production............................................................................................211.12.1. Personnel Capacity.................................................................................21

1.12.2. Machine Capacity....................................................................................22

1.12.3. Sequence for Purchase, Production and Sale......................................241.13. 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................................301.16.1. Effect on Demand...................................................................................30

1.16.2. Other Effects............................................................................................31

2. Decisions........................................................................................32

2.1. Company Decisions..............................................................................34

2.1.1. Lean Management.....................................................................................342.1.2. Payment of Dividends..............................................................................35

2.2. Sales Decisions.......................................................................................362.2.1. 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............................................................................412.3.1. 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........................................................................................442.4.4.1. 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...................................................................................523.3.2. 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 raw materials and bought-in goods - invoices are drawn up in Euro.

Produces goods in the Germany - all costs arising are in Euro.

Transports the finished goods to the central store and to the sales branches in thevarious sales markets.

Sells the products Alesa and Bordo in four markets in which the invoices

are drawn up in various currencies.

Currencies used

Market Germany U.S.A. China India

Currency Euro

(EUR)

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 importantduties 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 ormajority 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 departmentalempire 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

1.4. Company Policy


Define the goals of the company

Plan the strategic and operational measures

Ensure the availability of resources

Raw materials Machines Personnel Capital

Produce the products

Alesa Bordo

Supply the markets

Germany U.S.A. China India


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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 andprovides 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 durableconsumer 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 overallmarkets.

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, forsome 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 personalpreferences 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 theU.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 thenindicated 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 ofthe 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 Alesaand 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 becombined 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 CapacityThe 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 baseproduction 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 companiesreinvest 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

Period n Period n + 1

Order raw

materials

Delivery of

raw

materials

Raw material

store

Transport

to the

branch

stores

Germany

Deliver

to the

customers

Produce U.S.A.

Central store

Delivery of

bought-in

goods

China

Order

bought-in

goods

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, arecalculated 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



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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.



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1.14. Financing

At the start of period 0, all companies possess the same amount of cash. This is reportedin 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 plannedexpenditure:

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



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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).



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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.



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1.16. Summary of the Effect of Influencing Factors

1.16.1. Effect on Demand

FactorHas affect on

Demand Image

Price policy

Communication policy

Product policy

Product Quality

Image

Payment of dividends

Training of sales personnel

Continuity of sales prices

Punctual delivery



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1.16.2. Other Effects

Factor

Has affect on

Product

Quality

Through

-put

time per

unit

Fixed

costs

per

period

Production

times per

unit

Staff

turn-over

Rejection

rate

Total Quality

Management

Lean management

Production

technology

Continued

training of

personnel



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2. Decisions

When you have become familiar with the simulated company, you should prepare andenter 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



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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



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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



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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 ontheir 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.



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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.



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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



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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 tocreate 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.



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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 areavailable 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.



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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.



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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 theyhave 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.



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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.



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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.



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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, astodays 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 rigorousstructuring 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%.



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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.



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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 isavailable 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 financialsurplus 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.



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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 someproportion 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.



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3. Annexes

Please note that these sample calculations are given to you only to show you the methodof 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 cellsthat 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.



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3.1. Capacity Calculations

Capacity availableNumber of machines available 175 machines

Working hours / day 8 hours

Working days / period 60 days

Total capacity available 84,000 machine hours

Fully trained workers available 350 workers

Machine allocation 2 workers / machine

Capacity required

Production quantity Alesa 96,000 units

Bordo 36,000 units

Production time Alesa 45 minutes / unit

Bordo 20 minutes / unit

Capacity required Alesa 72,000 machine hours

Bordo 12,000 machine hours

Total capacity required 84,000 machine hours

Machines required 175 machines

Fully trained workers required 350 workers

Capacity surplus/deficit

available required surplus/deficit

Machines 175 175 0 machines

Workers 350 350 0 workers



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3.2. Calculation of Manufacturing Costs

Alesa Bordo TotalProduction quantity 96,000 36,000 units

Production time 45 20 minutes / unit

Capacity required 72,000 12,000 machine hours

Total capacity required 84,000 machine hours

Machines required 175 machines

Fully trained workers required 350 workers

Production wage 16.00 EUR / hour

Total production wages 2,688,000.00 EUR

Effective production wage 32.00 EUR / hour

Raw materials required / unit Alesa Bordo Cost

Aurit 3 units 12.00

Bekat 1 2 units 24.00

Calot 2 units 25.00

Cost of raw materials Alesa Bordo

Aurit 36.00 0.00 EUR / unit

Bekat 24.00 48.00 EUR / unit

Calot 0.00 50.00 EUR / unit

Total cost of raw materials 60.00 98.00 EUR / unit

Other variable production costs 40.00 EUR / hour

Production costs Alesa Bordo

Production wages 24.00 10.67 EUR / unit

Raw material 60.00 98.00 EUR / unit

Other variable production costs 30.00 13.33 EUR / unit

Production costs before rejects 114.00 122.00 EUR / unit

Rejection rate 5.00% 10.00%

Production costs after rejects 120.00 135.56 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.



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3.3. Determining the Change in Stock Value

Stock value changes occur if within a period the value of the product quantities eitherproduced 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



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3.3.1. In the Central Store

Alesa Quantity Value

units EUR / unit

Initial stock 65,000 120.00

Delivery from production 91,200 120.00

10,944,000.0

0

Delivery of bought-in goods 0.00

Total stock 156,200

Stock value / unit 120.00

Transferred to branch stores 94,000 120.00

Final stock 62,200 120.00

Change in stock -2,800 -336,000.00

Bordo Quantity Value

units EUR / unit


Delivery from production 32,400 135.56 4,392,144.00

Delivery of bought-in goods 0.00

Total stock 58,400


Transferred to branch stores 31,500 134.87


Change in stock 900 144,003.00



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3.3.2. In the Branch Store Germany


units EUR / unit


Delivery by transfer from central store 35,000 120.00

Total stock 37,000


Decrease by sales 36,000 120.00 4,320,000.00


Change in stock -1,000 -120,000.00

Bordo Quantity Value

units EUR / unit

Initial stock 1,500 134.00Delivery by transfer from central store 14,000 134.87

Total stock 15,500


Decrease by sales 15,000 134.79 2,021,850.00

Final stock 500 134.79

Change in stock -1,000 -133,605.00



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3.3.3. In the Branch Store U.S.A


units EUR / unit


Delivery by transfer from central store 23,000 120.00

Total stock 24,500


Decre

user manual learning phase

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