Business Simulation in Motor Industry - Research Paper Example

The first model caters to the market segment - City Size and Under 25 age group. The car is 3/5 Door Hatch Type with a 4 Cylinder Engine. It has an option of Superior Sound System/iPod. Buyers under 25 yrs of age are mostly single individuals with low to average income. They normally use the car as basic transportation for everyday activities. The second model caters to the market segment - Medium Size and 25 to 40 age group. The car is a 2/4 Door Saloon/Estate Type with a Large 6-8 Cylinder Engine.

It has several options such as Multi Location Airbags, Dual Fuel Operation, 6-Speed Gearbox, Speed Limiter, Electronic Stability Control, and Safety Package. Buyers in this age group are mostly average income individuals who have high preference in comfort, speed, style and safety. As a new entrant to the motor industry, the corporate strategy of the company is cost leadership. The car models will be positioned in the market as low priced in order to effectively penetrate the customer base.

The goal of the pricing strategy is to create a company's share in the total market. The first model will be priced at 11,007.08 while the second model will be priced at 18,216.85. However, even at a low price, the company forecasts an 18% gross profit margin. At the first year of production, the company will be manufacturing in one factory. It will be producing 50,000 units of each model. The factory will be employing at full capacity of 4,000 workers. The average wage offered to each employee would be 400, which is higher than the minimum wage per week in the industry.

In order to increase productivity, the company will initially invest in 20 units of automation.Forecast Production and SalesModel 1Model 2TotalModel cost per car [Mm]7,200.009,385.00Design cost per car [Md]888.001,553.50Options cost per car(1) [Mo]450.003,486.50Material cost per car [M=Mm+Md+Mo]8,538.0014,425.00Productivity (cars/worker/year) [Pr]4139Workers per car [Wk = 1 / Pr]0.0240,026Weekly wage [W]400.00400.00Labour cost per car [L = Wk*W*50]487.80512.82Total cost per car [C = L + M]9,025.8014,937.80Selling price [P]11,007.0818.216.

85Gross Margin % [= 100*(P - C)/P]18%18%Forecast Sales (units) [S]50,00050,000100,000Total Sales Income m [= S*P]550.35910.841,461.19Forecast production (units) [N]50,00050,000100,000Total Material Cost m [= M*N]426.90721.251,148.15Total Labour Cost m [= L*N]24.3925.6450.03Profit Forecast ( million)IncomeCostsTotal Sales Income1,461.19Total Material Cost1,148.15Total Labour Cost50.03Gross Profit263.01Fixed Overhead(2)124.11Promotion40.00Depreciation(2)66.00Operating Profit32.90Net Interest Payment14.

00Pre-tax profit18.90Tax (30%)5.67Post-tax profit13.23Cash Flow Forecast ( million)Cash InCash OutOpening Bank Balance500.00Total Sales Income1,461.19Total Material Cost1,148.15Total Labour Cost50.03Fixed Overhead(2)124.11Promotion Cost40.00Factory Cost650.00Automation Expenditure10.00Tax Payment5.67Balance before Loan(66.77)New Loan200.00Closing Bank Balance133.23NX0441 Business Game Decision FormSemester 1 2009/10Seminar Group . Team Number .