User Manual Learning Phase V1606

iBizSim: International Business Simulations
International Business Simulations
User Manual
iBizSim BM 6 Learning Phase
V.16.03
© 2016 by Prof. Dr. Ashok N. Ullal, Hoelderlinstrasse 13, 72127 Kusterdingen, Germany Page 1
Table of Contents
1. The Business Simulation iBizSim.........................6
1.1. Structure of the Business Simulation iBizSim..........6

1.2. Organization of the Management Team..................7
1.3. Management Tasks.................................................9
1.4. Company Policy.......................................................9
1.5. Analysis and Evaluation of Data - Setting up Indices
.....................................................................................11
1.6. Methodology for Decision Making.........................13
1.7. The Products.........................................................14
1.8. The Markets..........................................................15
1.9. Development of Demand......................................16
1.9.1. General.................................................................... 16
1.9.2. Decisions.................................................................16
1.9.3. Demand for Alesa and Bordo in the Markets............16
1.9.4. Effects of Inability to Deliver....................................17
1.10. Terms of Payment................................................19
1.11. Image..................................................................20
1.12. Production...........................................................21
1.12.1. Personnel Capacity................................................21
1.12.2. Machine Capacity..................................................22
1.12.3. Sequence for Purchase, Production and Sale.........24
1.13. Costs...................................................................25
1.13.1. Variable Production Costs......................................25
1.13.2. Variable Marketing Costs.......................................25
1.13.3. Fixed Costs............................................................25
1.13.4. Depreciation Costs.................................................26
1.13.5. Stock Value............................................................26
1.14. Financing.............................................................27
1.14.1. Procurement of Funding.........................................27
1.14.2. Liquidity and Insolvency........................................28
1.15. Exchanging Currencies........................................29
1.16. Summary of the Effect of Influencing Factors......30
1.16.1. Effect on Demand..................................................30

1.16.2. Other Effects.........................................................31
2. Decisions...........................................................32
2.1. Company Decisions...............................................34

2.1.1. Lean Management...................................................34
2.1.2. Payment of Dividends..............................................35
2.2. Sales Decisions.....................................................36
2.2.1. Market Research......................................................36
2.2.2. Product Policy - Product Management......................36
2.2.3. Pricing Policy...........................................................38
2.2.4. Communication Policy - Advertising, Sales Promotion
.......................................................................................... 38
2.2.5. Distribution Policy - Marketing Logistics...................39
2.2.5.1. Quantities to be Transported........................................39
2.2.5.2. Sales Branches.............................................................40
2.2.5.3. Training of Sales Personnel - Key Accounts..................40
2.3. Purchasing Decisions............................................41
2.3.1. Market Research......................................................41
2.3.2. Purchase of Raw Material.........................................41
2.3.3. Purchase of Bought-in Goods...................................41
2.4. Production Decisions.............................................42
2.4.1. Planning of Production Quantities............................42
2.4.2. Appointment and Dismissal of Personnel.................43
2.4.3. Sale and Purchase of Machines................................43
2.4.4. Lean Production.......................................................44
2.4.4.1. Total Quality Management (TQM).................................44
2.4.4.2. Production Technology.................................................44
2.4.4.3. Continued Training of Personnel...................................44
2.5. Financial Decisions................................................46
2.5.1. Raising Short-term and Long-term Loans.................46
2.5.2. Fixed-term Deposits with Banks...............................46
2.5.3. Export Factoring......................................................46
2.5.4. Exchange Rate Fixing..............................................47
3. Annexes............................................................48
3.1. Capacity Calculations............................................49

3.2. Calculation of Manufacturing Costs.......................50

3.3. Determining the Change in Stock Value................51
3.3.1. In the Central Store.................................................52
3.3.2. In the Branch Store – Germany................................53
3.3.3. In the Branch Store – U.S.A......................................54
3.3.4. In the Branch Store – China.....................................55
3.3.5. In the Branch Store – India.......................................56
3.3.6. Change in Stock Value.............................................57
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 strat-
egy for a simulated company operating in the world markets. The sim-
ulated 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 ex-

pects 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 the various 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 U.S. Dollar Chinese Yuan Indian Rupee
(EUR) (USD) Renminbi (INR)
(CNY)
The balance sheet, the profit and loss account, and the finan-
cial accounts will all be drawn up in Euro.
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 manufac-
tures the products it supplies, but there exists the possibility of buy-
ing-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 mar-
kets, 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 com-
puter program, and the results of each period are printed out for each
company in a Management Report. From this report, each manage-
ment team can see the consequences of its decisions. The report con-
stitutes the basis of the decisions for the subsequent period.
One of the tasks of the company’s 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 simula-
tion is assured.
1.2. Organization of the Management Team

The amount of information and knowledge necessary for the success-
ful running of a company is continually increasing. This forces the
management to delegate important duties to senior colleagues who in
turn have to work together for the company's success. iBizSim recog-
nizes 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 pre-

requisite.
Your team will take over the management of one of the companies
that are competing with one another in an industry. In real life, man-
agement 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 bet-
ter 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.
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, produc-
tion to individual team members. In the areas of responsibility allo-
cated in this way, each team member can prepare the decisions in the
allocated functional area and present them to the team for subsequent
discussion.
Finally, your team must be able to reach a group decision. This

means that you must first agree on how the final decisions are
to be made, whether by unanimous or majority vote.
There are further points to consider in corporate seminars.
● If participants from the same real-life company find themselves

in the same team, there is little point in transferring the familiar
hierarchical chain of command to the simulation. If a member of
the team, in real life in a high position, tries to push through
his/her own view in the simulation in the same way as in the
real world, and to deny the other team members any chance of
developing, then motivation will die, and a major part of the
point of participating in the simulation will be lost.
● Not infrequently, one still encounters a certain friction e.g.

between engineers and personnel in the financial departments,
between personnel in production and those in sales, based on a
lack of knowledge of the tasks and problems that other
colleagues have to cope with.
● It might therefore be better to allocate to the members of the

team tasks that are unfamiliar to them from the point of view of
their training or activity in their company. If in the simulation,
for example, a production engineer takes over the marketing
section, whereas a director of sales is responsible for
production, then a certain mutual understanding can be
developed which will help to overcome friction in the company,
a blinkered approach, as well as any departmental empire
building.
Whatever organization you choose, remember that it is impor-

tant for every member of the team to be involved as much as
possible in reaching the decisions.
1.3. Management Tasks
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
1.4.Company Policy
One of your first tasks as a team will be to define your business objec-
tives 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 Contented workforce, continuity of employment
sphere: even when there are fluctuations in sales,
identification of employees with the company.
Your team should discuss such widely varying and often con-
flicting business objectives, even if it means that at the end of
the discussion some easily determinable objectives like com-
pany profit or profitability are selected as objectives and used
as a measure of success and hence of “ability”.
1.5. Analysis and Evaluation of Data - Setting up

Indices
The first Management Report shows the opening situation at the end
of period 0 and provides a wealth of data at the beginning of the simu-
lation. Subsequent reports at the end of each period give each man-
agement team an overview of the success and situation of its com-
pany. 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 par-
ticularly meaningful and that should be regularly collated and dis-
played 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.
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 ra-
tios/relationships may not be meaningful.
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
1.7. The Products

Your company currently manufactures the products Alesa and Bordo.
They are durable consumer goods.
The products are offered on four different markets. At the start of the
simulation, their selling prices and sales figures are identical for all
companies.
Alesa and Bordo may be characterized as follows:
● They are manufactured partly from the same raw materials,

partly from different ones. The raw materials are Aurit, Bekat
and Calot.
● Each unit of Alesa requires 3 units Aurit and 1 unit Bekat.
● Each unit of Bordo requires 2 units Bekat and 2 units Calot.
● They are manufactured on the same groups of machines, but

require different production times per unit.
● Both products may be bought in as finished goods which,

thanks to strict quality control measures, are equal in quality to
your own production.
● There is no competition between Alesa and Bordo as

substitutes.
● Alesa is a product that has been available in the markets for

several years and has developed into a main generator of
turnover. The well-tried and tested basic concept, which, when
it was originally introduced, was considered a major innovation,
has been largely retained. From time to time attempts have
been made by introducing minor improvements and adaptations
to respond to ever more sophisticated requirements,
particularly in the markets Germany and U.S.A. But this has not
prevented the customers from turning to newer products.
● Bordo is a mature product that corresponds to state-of-the-art

technology. Bordo meets the high demands of the discerning
consumer with high spending power. It has earned high praise
from consumer test associations and in technical journals.
Bordo has been available in the markets for several periods and
to date has fulfilled all expectations. So far the markets have
been only partially opened up, and that to differing degrees.
1.8. The Markets

The products Alesa and Bordo are offered on four geographically sepa-
rate global markets, Germany, U.S.A., China and India.
All companies compete in these markets, but there are no further sup-
pliers. 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 sup-

ply 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 dis-
patch.
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 rela-

tionships in the markets, a permanent presence on the mar-
kets 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.
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 pre-
dictions 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 deci-
sions of the companies. Hence, the sales position of the indi-
vidual companies can and will deviate from the general situa-
tion in the overall markets.
1.9.2. Decisions
As at the start of the simulation the products of all the companies are
the same, special significance attaches to the companies’ sales policy
decisions. Their aim is to firmly establish the name of the products and
of the company in the consciousness of potential customers, to create
a competitive advantage for their own products, and last but not least
to increase demand and sales at “reasonable” prices.
In this, the demand and purchasing decisions of the customers

will be determined partly by their experience with the degree
to which the different suppliers are able and willing to deliver
the right goods at the right time at the right price.
1.9.3. Demand for Alesa and Bordo in the Markets

Alesa and Bordo develop differently in the markets. These develop-
ments can be influenced considerably by the companies’ decisions.
Hence, the sales situation of the 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 after-
wards in the U.S.A. In both markets Alesa achieved high turnover fig-
ures and great success. However, for some time now turnover in Ger-
many 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 fore-
casts 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 de-
cline in the long run.
In line with declining interest on the part of potential cus-

tomers, the level of personal preferences for Alesa in these
markets must be expected to decline or disappear. This, how-
ever, also applies to the comparable products of the competi-
tion.
Alesa was introduced in China and India at a considerably later date.

In these markets, the product can be considered as being in the ma-
ture 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 Ger-

many and the U.S.A., where potential customers are particularly recep-
tive 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 ex-
pected in these markets, as the product is increasingly accepted by
customers, leading to higher demand.
The forecasts are only valid while the economic situation re-
mains 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:
● 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 cus-

tomers who have drifted away as a result of this loss of image.
1.10. Terms of Payment

The customers in all market pay after 90 days i.e. in the following pe-
riod.
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 ex-
change rate valid in that period.
There are two possibilities depending on your decision to use ex-

change rate fixing (see “financial decisions“):
● If the exchange rates are not forward fixed, the accounts

receivable are entered on the assets side at the spot rate. Any
exchange rate profits or losses are then indicated in the profit
and loss account of the subsequent period.
● If exchange rates are forward fixed, the accounts receivable are

entered on the assets side at the forward rate. Hence there will
be no exchange rate profits or losses registered in the following
period.
Please note that the exchange rate fixing is entered as a deci-

sion 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“).
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 promo-
tions 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 de-

sired 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 company’s reputation and worsens its
image in proportion to the degree to which demand in the market
cannot be met. Damage to image is effective in the following period.
● Motivation and qualification of personnel involved in marketing:

The products are of a high technical standard and hence require
explanation and guidance from the sales personnel. This puts the
motivation and the qualifications of the sales personnel at a premium.
They can be achieved by the training of sales personnel.
● Continuity of prices:
Customers show annoyance with, and lose faith in, companies whose
prices fluctuate greatly between periods.
● Payment of dividend:
Dividend payouts up to a level benefits image.
At the start of the simulation, all companies enjoy the same

image. This factor has the value of 100. It is calculated sepa-
rately for each market in each period. The image of the com-
panies affects the level of demand for their products: a good
image can increase demand; a poor image can result in a re-
duction in the demand for the products of a company.
1.12. Production
You are required to set up the production program to manufacture the
products Alesa and Bordo utilizing the available capacities of raw ma-
terials, 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 be-

tween demand on the markets and the necessary production capacity
by:
● Adapting the working hours by introducing overtime (for a

maximum 2 consecutive periods) or by introducing or canceling
a second shift. Note that overtime can only be used when you
are operating in single shift and cannot be combined with the
second shift.
● Changing the machine capacity by purchasing or selling

machines.
● Changing the personnel capacity by appointing or dismissing

personnel.
● Buying in finished units of Alesa.
● Buying in finished units of Bordo.
● Utilizing excess capacity and producing for stock.
If demand exceeds available supplies of the products, your company

cannot meet the demand, with unfavorable consequences for the com-
pany. If demand is lower than the supply of products available, stock-
piling 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 speci-
fied in the List of Parameters. This means that you are not al-
lowed 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 company’s operations.

Wages and salaries of these employees, whose number is basically de-
termined by size of the company, are included in the fixed costs.
In addition, the company has available a workforce employed in the

actual production. This pool of productive labor can be enlarged or re-
duced 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 ma-

chines 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 work-
ing 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 person-

nel by expenditure on continued training of personnel.
1.12.2. Machine Capacity

The number of machines available in any period is shown in the Man-
agement 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.
● 16 machine hours per working day with double-shift operations.
Each period covers one quarter with 60 working days.
The products Alesa and Bordo make different demands on production

capacity. The base production times are defined in the List of Parame-
ters.
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 calcu-
lated in each period as costs. The companies reinvest in each
period the same amount that is calculated as depreciation.
This means that the machines are maintained at a constant
level and the production capacity does not fall due to aging
machines.
1.12.3. Sequence for Purchase, Production and Sale
Period n Period n + 1
Order raw
materials
Delivery of
raw
materials
Raw material
Germany
store
Produce U.S.A.
Transport
Deliver
to the
Central store to the
branch
customers
stores
Delivery of
boughtin China
goods
Order
boughtin India
goods
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.
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 pro-
duced.
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 pro-
duction time per unit, the introduction of overtime or of a second shift.
Into this category fall the costs of:
● Raw materials used by the production.
● Production wages.
● Other variable costs. These are largely machine-dependent and

are therefore calculated as cost rates per machine hour.
The wages for surplus production personnel, i.e. personnel not

required in a period, are calculated as fixed costs.
1.13.2. Variable Marketing Costs

The variable marketing costs depend on the quantity of goods trans-
ported 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 inde-
pendent 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 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.
1.14. Financing
At the start of period 0, all companies possess the same amount of
cash. This is reported in the liquidity account and in the balance sheet.
The List of Parameters defines the minimum amounts of cash that

your company must maintain at the end of a period, and the maxi-
mum 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 ma-

chine depreciation, withdrawal from banks of fixed-term deposits, etc.
1.14.1. Procurement of Funding

The companies have several methods of procuring financial resources
to cover planned expenditure:
● By selling of manufactured or bought-in products. The turnover

of a period is shown in the balance as accounts receivable and
the customers pay in the following period.
● By selling factoring the accounts receivable. This is a means of

receiving the cash in the current instead of the following period.
The factoring costs are defined in the List of Parameters.
● By selling used production machines. The book value of these

machines is defined in the List of Parameters.
● By reducing of stocks of raw materials and bought-in goods

thereby releasing locked capital.
● By utilizing short-term credit (= overdrafts). The overdraft is

granted automatically when your company does not have the
minimum amount of cash at the end of the period. The
overdraft is also repaid automatically in the 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 avail-
able 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 ei-

ther 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 ad-
justed for any accumulated losses).
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 company’s 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 Manage-
ment Report of the period.
1.16. Summary of the Effect of Influencing

Factors
1.16.1. Effect on Demand
Has affect on
Factor
Demand Image
Price policy •
Communication policy •
Product policy •
Product Quality •
Image •
Payment of dividends •
Training of sales personnel •
Continuity of sales prices •
Punctual delivery •
1.16.2. Other Effects
Has affect on
Factor Through- Fixed Product Production Staff Rejection

put time costs per quality times per turn- rate
per unit period unit over
Lean management • •
Total Quality
• •
Management
Production
•
technology
Continued training of
• • •
personnel
2. Decisions
When you have become familiar with the simulated company, you
should prepare and enter the decisions for the next period.
The course instructors will define and tell you of the specific dates and
times for the entering of these decisions for every period.
It is essential that you enter your decisions by this deadline.

Otherwise the decisions of period 0 will be used as your deci-
sions 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
● 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
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 con-
tinuous 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 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 commen-
surate return on their invested capital and their share of the com-
pany’s success.
Dividend payments at the end of each period improve the

company’s image, but at the same time reduce the company’s
own retained earnings and credit line.
Dividend payments that reduce the company’s available capital can

lead to critical discussion in public. This in turn can affect the com-
pany’s reputation.
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 one’s 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.
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. Ex-
perts are of the opinion that in this way demand can be in-
creased by a maximum of 15%.
Improved
customer service
Extended Environmentally
guarantee friendly packaging
Basic function
= Basic use
Improved Attractive
durability design
Fewer parts subject

to wear and tear
= Repair-friendliness
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 prod-
ucts.
If prices are set too high, particularly if they are not justified by adver-
tising 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 de-
mand 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 charac-
teristics of the products - such as technical fields of application, econ-
omy, design, etc. They draw attention to the products of a company
and serve to distinguish the products from others on the market, and
to create preferences. Advertising and sales promotion directly affect
the number of orders received by a company - the sum total of all ex-
penditure 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 de-
clines. The greatest effect arises in the period in which expenditure oc-
curs.
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 period’s turnover will not
lead to any notable further increase in the effect of communi-
cation policy.
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 quanti-
ties to the right place.
2.2.5.1. Quantities to be Transported
At the start of each period, the companies decide which quantities of

products are to be transported from the central store to the branch
stores.
The following types of finished goods are available for transport to the
branch stores:
● The stocks available at the start of each period. These are the
residual quantities left over at the end of the previous period.
● The deliverable part of the products produced in the same

period. This is dependent on the through-put time.
● The bought-in goods delivered in the period. These are the

finished goods that were ordered in the previous period.
You may transport the maximum quantity represented by the total of

the three types of finished goods.
These transport quantities together with the quantities available in the

branch stores are available to meet the demand.
If the transport decisions of the companies exceed the avail-

able 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 Pa-
rameters 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 dis-
counts. The discounts are included in the accounts of the same period.
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 de-
clining, reducing expenditure can reduce a sales branch in size.
Hence the expenditure on sales branches represents the ca-

pacity 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 mar-
kets that have been supplied for some time. The fixed costs of the
sales branches in the individual markets are given in the List of Param-
eters.
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 rad-
ical 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 one’s

company can be improved by training in the qualities and possible
fields of application of the products, as well as the required sales tech-
niques. 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 company’s image

depends on how far the training is superior/inferior to that of
the competition. Changes in image of up to 5% seem possible.
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 infor-

mation on any trends in good enough time to include such changes in
their decisions.
Without market research, the companies will only be informed

of changes once they have already taken place.
2.3.2. Purchase of Raw Material

The level of production per period depends on, among other things,
sufficient stocks in hand and/or prompts ordering of materials. If stock
in hand plus materials ordered are not sufficient for planned produc-
tion, 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 pay-
ment 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.
2.4. Production Decisions
2.4.1. Planning of Production Quantities

In each period the companies establish the planned production quanti-
ties of the products, these quantities are limited by the capacity avail-
able 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 in-

crease 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 deter-
mined by aging.
Overtime must not be used for more than two consecutive pe-
riods. After that, at least one period must be without over-
time.
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 cor-
responding 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 deci-
sion 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.
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 ex-
penses 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 no-
tice has been given.
Employees who have been given notice of dismissal remain fully avail-
able to the companies during the period of notice. The dismissal is ef-
fective 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 at-
tract 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. Pay-

ment 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.
2.4.4. Lean Production

2.4.4.1. Total Quality Management (TQM)
It is no longer sufficient to regard quality as the fulfillment of minimum

standards, as today’s commercial world is characterized by ever in-
creasing competitive expectations. Today, “quality” is seen as an all-
embracing concept. It includes products and personnel, but also all the
company’s 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 ex-
pensive 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 sys-

tem 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 competi-

tors require each company to pay increasing attention to quality and
to efforts to improve it.
Experts expect that an increase in product quality up to 15%

can be achieved by these measures.
2.4.4.2. Production Technology
Through investment in superior technology, but particularly through a

rigorous structuring of logistic process, an improved flow of informa-
tion, 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 opin-

ion that a considerable cost-reduction potential can be real-
ized in production. Specifically, such measures can bring
about a reduction of the production time per unit, up to a
maximum of 20%.
2.4.4.3. Continued Training of Personnel
TQM and lean production presuppose qualified and motivated person-

nel. 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 expen-
diture that results in:
● 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.
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 pro-
portion of the company’s 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 pe-
riod.
Short-term loans are automatically paid back in the following period.
Long-term loans, on the other hand, do have to be applied for. The

amount applied for is available in the same period. The rate of inter-
est for long-term loans is, as a rule, more favorable than for over-
drafts. 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). Re-
demption takes place in the following period.
2.5.2. Fixed-term Deposits with Banks

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

It is possible to arrange for the collection of all accounts receivable
from customers in all markets through the services of a factoring com-
pany. Thus, return on turnover in the period of sale immediately be-
comes 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 Pa-
rameters. The account in the markets is paid at the forward rate of the
pertinent period.
2.5.4. Exchange Rate Fixing

Sales activities in the export markets are conducted in foreign curren-
cies. The forward and spot rates for the pertinent period are docu-
mented in the Management Report. The forward rate is the rate at
which 90-day forward buying can be conducted. This means that the
companies have the following alternatives:
● At the conclusion of the sales contracts (e.g. in period n) the

foreign exchange due to be received by the companies 90 days
later (period n+1) can be sold at the forward rate. The proceeds
from such a transaction are received by the companies at the
fixed rate of period n.
Currency transactions of this nature give the companies a

certain protection against exchange rate risk, but the
commission, brokerage etc involved cost some proportion of the
amount receivable.
● If no forward buying transaction is conducted, receipts of

foreign currency paid by customers in the period n+1 will be
converted at the then valid spot rate.
The spot rate of the period n+1 can, and as a rule will, deviate
from both the spot rate of period n and from the forward rate of
period n+1. Depending on whether the spot rate of period n+1
is higher or lower, exchange rate losses or profits will accrue.
3. Annexes
Please note that these sample calculations are given to you only to
show you the method of calculation and may not represent the actual
values of any period.
● Capacity calculation
● Calculation of manufacturing costs
● Determining the change in stock value
Cell background colors are used in all the following tables to

denote different type of cell values.
Color Meaning
Value from the Management
Report
Value from the List of
Parameters
Calculated value = cell with a
formula
The sample tables are individual tables of a single spread-

sheet. Hence there are cells that are linked to values from
other tables so that values that have been input or calculated
in one table are used in the following tables.
3.1. Capacity Calculations

Capacity available
Number 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
3.2. Calculation of Manufacturing Costs

Alesa Bordo Total
Production 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.
3.3. Determining the Change in Stock Value

Stock value changes occur if within a period the value of the product
quantities either produced or bought in does not correspond to the
value of the product quantities sold. This is the normal case. In this,
there are the following possibilities:
● Stock value increases, i.e. the value of the product quantities

produced or bought in exceeds the value of the quantities sold.
Stock increases are considered as proceeds.
● Stock value decreases, i.e. the value of the product quantities

produced or bought in is lower than the value of the goods sold.
Stock decreases are counted as expenditure.
For products actually produced by the company are con-

cerned, 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 ex-
penditure in the period in which they arise and are not in-
cluded 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
3.3.1. In the Central Store

Alesa Quantity Value
units EUR / unit
Initial stock 65,000 120.00
10,944,000.0
Delivery from production 91,200 120.00 0
Delivery of boughtin 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 boughtin goods 0.00
Total stock 58,400
Transferred to branch stores 31,500 134.87
Change in stock 900 144,003.00
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

units EUR / unit
Total stock 15,500
Final stock 500 134.79
3.3.3. In the Branch Store – U.S.A

units EUR / unit
Total stock 24,500

units EUR / unit
Total stock 10,600
3.3.4. In the Branch Store – China

units EUR / unit
Delivery by transfer from central store 17,000 120.00 2,040,000.00
Total stock 18,500

units EUR / unit
Delivery by transfer from central store 3,500 134.87 472,045.00
Total stock 5,500
Decrease by sales 5,000 134.55 672,750.00
3.3.5. In the Branch Store – India

units EUR / unit
Delivery by transfer from central store 19,000 120.00 2,280,000.00
Total stock 22,000

units EUR / unit
Delivery by transfer from central store 5,000 134.87 674,350.00
Total stock 7,800
3.3.6. Change in Stock Value

Alesa Bordo Total
Central store 336,000.00 144,003.00 191,997.00 EUR
Branch store Germany 120,000.00 133,605.00 253,605.00 EUR
Branch store U.S.A. 120,000.00 133,556.00 253,556.00 EUR
Branch store China 120,000.00 200,725.00 320,725.00 EUR
Branch store India 240,000.00 334,832.00 574,832.00 EUR
Total 936,000.00 658,715.00 1,594,715.00 EUR

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iBizSim: International Business Simulations

International Business Simulations

1. The Business Simulation iBizSim.........................6

1.1. Structure of the Business Simulation iBizSim..........6

1.16.1. Effect on Demand..................................................30

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

3.1. Capacity Calculations............................................49

3.2. Calculation of Manufacturing Costs.......................50

The course is designed to give groups of students working as teams

The course emphasizes strategic planning and control and ex-

The simulated company that you will manage:

Purchases raw materials and bought-in goods - invoices are drawn

1. The Business Simulation

The products are generalized consumer goods. Hence the simulation is

Specific experience from particular branches of industry is

The simulation is run in chronological periods of a quarter each. Hence

One of the tasks of the company’s management team is to analyze the

All decisions have to be made in such a way that the long-term

1.2. Organization of the Management Team

Hence your willingness to work in a team is an absolute pre-

It is your task to:

● Improve the market position of the company.

● Achieve a satisfactory level of profitability.

In principle, the internal organization and allocation of responsibilities

Finally, your team must be able to reach a group decision. This

There are further points to consider in corporate seminars.

● If participants from the same real-life company find themselves

point of participating in the simulation will be lost.

● Not infrequently, one still encounters a certain friction e.g.

● It might therefore be better to allocate to the members of the

Whatever organization you choose, remember that it is impor-

1.3. Management Tasks

Raw materials Machines Personnel Capital

Germany U.S.A. China India

The company is not rigidly bound to the policy established at

Here are some examples of business objectives:

In production: Optimal stock holding, high degree of utilization of

1.5. Analysis and Evaluation of Data - Setting up

● In which areas of the company do bottlenecks exist? How

● Which of the indices appear really fundamental and should thus

● Which data should be collected in tabular form over several

● Which data are suitable for graphical representation?

● How is the progression of the curve of the diagrams to be

● What deviations from the planned or expected course of events

● 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

● Meaningful information could be supplied by relative figures.

Remember that the quality and usefulness of indices depends

1.6. Methodology for Decision Making

Acquire management information

Past periods Current period Future periods

Analyze management information

1.7. The Products

Alesa and Bordo may be characterized as follows:

● They are manufactured partly from the same raw materials,

● 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

● Both products may be bought in as finished goods which,

● There is no competition between Alesa and Bordo as

● Alesa is a product that has been available in the markets for

● Bordo is a mature product that corresponds to state-of-the-art