The company started off producing 20,000 units of mountain bikes. We did not change the production quantity. Last year our forecast sales were 24,000 when we only sold 19,866; therefore we thought it would be best to leave production at 20,000 bikes. Having excess inventory, we concluded that 20,000 units should be enough considering our quality has not changed and our advertising will not increase the sales dramatically. Although we had the choice to produce as much as 30,000 units, we felt as though we did not have sufficient money to increase production. We were interested in allocating the money towards marketing as opposed to production. We realized that without awareness, no matter how many units we make, sales would be inefficient.
To calculate optimal pricing I used MC outlined in the case as based on volume of drives produced weekly. Fixed costs of plant and equipment were not included in this analysis although are later evaluated for breakeven time frame.
Alex comes up with the consensus that the “Goal” of his business and many others is to increase net profit while simultaneously increasing return on investment and their cash flow at the plant. This basically means to make money. These three measurements can be achieved by looking closer into his second set of measurements. Alex specifically must find a way to increase throughput while at the same time decreasing it inventory and operational expenses. All three of these measurements must be cautiously monitored since they all rely on each other to be obtained in balance. Factors that cause throughput, inventory, and operational expenses to become unbalanced are excess manpower and balance capacity of the demand of resources in the market.
Along with capacity, we also made it a focus to limit the amount of overtime and second shift workers. This kept our costs down and our profit margin wider. We paid attention to our inventory on hand and made sure to not schedule more production than was needed. Towards the later rounds, we really seemed to grasp the idea of the game, which can be seen in our large increase in profitability. In the Finance portion, we borrowed money in the first five weeks to pay off our current debt. As the game got into the later rounds we began paying off our current and long term debt because our profits were increasing at a higher rate. Overall, we believe that our group had a decent understanding of the concepts as we finished with high market share and profits.
For my project, I ran Coffee-Roma, a coffee shop located in the business district of a large city. My simulation ran for 60 days. Over this timeframe, I hired 7 employees and earned gross revenues of $89,984.20. From those revenues, my net profit totaled $14,046.83. Below are the details of how I attempted to best run my business.
Jonah tells them that they have hidden capacity because some of their thinking is incorrect. Some ways to increase capacity at the bottlenecks are not to have any down time within the bottlenecks, make sure they are only working on quality products so not to waste time, and relieve the workload by farming some work out to vendors. Jonah wants to know how much it cost when the bottlenecks (X and heat treat) machines are down. Lou says $32 per hour for the X machine and $21 per hour for heat treat. How much when the whole
The simulation had shown my ice cream store made a $1.6million revenue with a net profit of $465k. It does not seem very much net profits because of IceFlake’s operating expense in its programs and advertisements. During the operation, 10 employees were hired for IceFlake with a salary that is in the range of $7-9 dollars per hour. Payroll usually consist one of the highest expense in most industry, however the programs at lv10 costed more than the payroll. Furthermore, it is hard to determine rather how effective the programs are at different levels. Even through my market share is averaged at 20% against other 4 competitors, the advertisements provided an unknown amount of how many more customers can be attracted with. The brand recognition was high with customer satisfaction and employee morale at very pleased, but with decreased advertisements shown same number of customers each day. The simulation did not provide a more accurate data or a benchmarking to other competitors, it simply shown how much market share and their price. Therefore, the effectiveness of the programs and its advertisements was difficult to be determined.
In this meeting we learned that around 80% of the auxiliary orders was being returned by patients for refunds. The main causes was that the product was uncomfortable, tore easily (unreliable), and that patients would rather get it locally for much cheaper. With this upper management asked for us not to offer the products to patients into further notice. We also discussed that the only sunk cost in this situation is the hiring and training of new sale agents which we couldn't consider in order to discontinue the project. We all understood that this cost wouldn't be recovered as well. According to Accounting Tool" A sunk cost is a cost that an entity has incurred, and which it can no longer recover by any means. Sunk costs should not be considered when making the decision to continue investing in an ongoing project, since these costs cannot be recovered. Instead, only relevant costs should be considered. However, many managers continue investing in projects because of the sheer size of the amounts already invested in the past. They do not want to "lose the investment" by curtailing a project that is proving to not be profitable, so they continue pouring more cash into it. Rationally, they should consider earlier investments to be sunk costs, and therefore exclude them from consideration when deciding whether to continue with further investments. " We convinced
Initial Game Strategy: The team met, the day before the game was about to start, to prepare a strategy based on the learning that we had while playing the demo version of the game. We had realized that the machines in Station 1 and Station 3 were operating at full capacity (i.e.100% utilization) when the demand was high. As a result, inventories were queuing up right before these two stations. We thought of buying both the machines but due to cash
We need this maintained efficiency to allow us to continue to outperform our competition. In order to stop this potential downward spiral we will need to look at a couple of options for our company.
1. The current costing system is a simple costing system. This type of system is functional in terms of its simplicity, but often relies on allocations that may not be accurate. The choice of allocation drivers is usually based on convenience rather than the specific activity. In this case, the machine hours allocation seems to be arbitrary, at 2-to-1 brass to chrome. Yet, direct manufacturing labour is not allocated in accordance with the same ratio. If a unit of chrome takes 3.5 hours compared with 1.5 hours of brass, then allocating overhead costs on the basis of 2-to-1 distorts the true costs of that overhead. Thus, the way that Scotty is implementing its simple costing system is not delivering accurate cost information. Further, the addition of the new product (chrome) serves the purposes of reducing the overhead allocation for brass, making brass look more profitable than it would have looked without chrome in the lineup.
The cost for machinery in setting up the machine is very high initial cost, included manufacturing plant as well as the cost of transportation has reduced the margin of profit (Baharudin, Wahid, 2006). However, IBS has demonstrated that the savings in the construction time is able to compensate the higher construction cost incurred (Baharudin, Wahid, 2006).