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SUMMARY OF THE BUSINESS POLICY GAME COSTS — Year 3, Quarter 1
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(Costs change over time because of inflation and changes made by management.)
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Marketing Expenses
Salespeople:
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Salaries and commissions:
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$3,000 or Dn, Rp or Ps 8971 per quarter + 20 cents or 0.60 Lc per unit
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Training:
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$10,000 or 36,000 in local currency per trainee
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Moving expense:
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$5,000 or 30,000 in local currency per salesperson transferred
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Severance expense:
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$5,000 or 30,000 in local currency per salesperson fired
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Inventory storage: In-plant warehouse: 10 cents or Dn, Rp, or Ps 0.60 per unit up to 300,000 units
Public warehouse: 30 cents or Dn, Rp or Ps 1.80 per unit
Transportation Expense:
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Cost per unit in dollars
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Marketing Research
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Shipments from:
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To:
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convert to Lc at current rates
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Competitive Advertising
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$40,000
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Sales office or plant
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Customer in same area
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$0.10
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Sales Force Comparison
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$20,000
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Plant (Merica)
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Sales office in other Merica area
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$0.60
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Consumer Preference I
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$60,000
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Plant (Merica)
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Foreign sales office
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$0.90
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Consumer Preference II
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$80,000
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Plant (Foreign)
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Merica sales office
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$0.90
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Sales Force Compensation
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$40,000
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General Selling Expense: Each Merica area: $37,500 + $4,000 x number of salespeople + $0.20 x number of units sold
N/P/S: Lc 225,000 + Lc 24,000 x number of salespeople + Lc 1.20 x number of units sold
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Production Costs
Labor costs/line for Model 1, Quality 2, Features 2 (other models as reported):
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Standard costs/unit
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Straight time:
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$288 or Dn, Rp or Ps 890 per hour for Model 1
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Labor
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$2.88
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Lc 8.90
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Second shift:
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110% of straight time
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Materials
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1.23
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5.72
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Overtime:
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150% of straight time (200% in N/P/S)
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Maintenance
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0.25
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1.50
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Total (Qual 2/Feat 2)
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$4.36
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Lc 16.12
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Maintenance:
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$25 or Dn, Rp or Ps 150 per hour per line
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(Qual 3 or Feat 3) + 10%
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(Qual 1 or Feat 1) - 10%
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Layoff standby cost:
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$52,000 or Dn, Rp or Ps 312,000 per quarter per line
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Deactivation cost:
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$100,000 or Dn, Rp or Ps 600,000 per line
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Reactivation cost:
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$50,000 or Dn, Rp or Ps 300,000 per line
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Construction Costs:
New 2nd Shift:
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$100,000 per line worker training (home area only)
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line:
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$500,000 or Lc 3,000,000 per line + Worker training: $100,000 or Lc 600,000 per line
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New addition to plant:
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$900,000 or Dn, Rp or Ps 5,400,000 per 2-line addition
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New plant construction:
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2 lines capacity $1,200,000 or Dn, Rp or Ps 7,200,000
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4 lines capacity $1,900,000 or Dn, Rp or Ps 11,400,000
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6 lines capacity: $2,600,000 or Dn, Rp or Ps 15,600,000
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8 lines capacity: $3,300,000 or Dn, Rp or Ps 19,800,000
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10 lines capacity $4,000,000 or Dn, Rp, or Ps 24,000,000
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Finance Expenses
Bank loan: Interest at the short-term interest rate during the quarter the loan is issued
Bonds: Existing bonds, at 10% annual interest, new bonds at long term interest rate in quarter of issue
Interest paid quarterly. Bonds\ are callable at a 5 percent call premium
Common stock: Issue price determined by formula in text
Income tax: 39% of net income; paid quarterly
Value Added Tax in N/P/S: 10% of net sales to customers, paid quarterly
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Other Expenses
Executives' salaries: $50,000 or Lc 300,000 per manufacturing plant, $25,000 or Lc 150,000 per sales office, each quarter
Plant depreciation: $26,000 per quarter (existing plant)
Straight-line basis over 31.5 years, no salvage value (0.7937% per quarter)
Equipment depreciation: $107,000 in Year 2, Quarter 4 (existing equipment)
Straight-line basis over 7 years, no salvage value (3.5714% per quarter)
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