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Business Simulation in Motor Industry - Research Paper Example

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Summary to research paper on topic "Business Simulation in Motor Industry"
The automobile market is segmented into age groups and car sizes. Figure 1 shows the percentage share of market segments in the total market according to car sizes and age groups. The pie graphs illustrates that the highest number of buyers are in the age group 25 to 40 who buys medium size cars…
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Business Simulation in Motor Industry
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Download file "Business Simulation in Motor Industry" to see previous pages... 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.
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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 Sales


Model 1
Model 2
Total
Model cost per car [Mm]
7,200.00
9,385.00

Design cost per car [Md]
888.00
1,553.50

Options cost per car(1) [Mo]
450.00
3,486.50

Material cost per car [M=Mm+Md+Mo]
8,538.00
14,425.00





Productivity (cars/worker/year) [Pr]
41
39

Workers per car [Wk = 1 / Pr]
0.024
0,026

Weekly wage [W]
400.00
400.00

Labour cost per car [L = Wk*W*50]
487.80
512.82





Total cost per car [C = L + M]
9,025.80
14,937.80





Selling price [P]
11,007.08
18.216.85

Gross Margin % [= 100*(P - C)/P]
18%
18%





Forecast Sales (units) [S]
50,000
50,000
100,000
Total Sales Income m [= S*P]
550.35
910.84
1,461.19




Forecast production (units) [N]
50,000
50,000
100,000
Total Material Cost m [= M*N]
426.90
721.25
1,148.15
Total Labour Cost m [= L*N]
24.39
25.64
50.03


Profit Forecast ( million)

Income
Costs
Total Sales Income
1,461.19




Total Material Cost

1,148.15
Total Labour Cost

50.03



Gross Profit
263.01




Fixed Overhead(2)

124.11
Promotion

40.00
Depreciation(2)

66.00



Operating Profit
32.90




Net Interest Payment

14.00



Pre-tax profit
18.90




Tax (30%)

5.67



Post-tax profit
13.23



Cash Flow Forecast ( million)

Cash In
Cash Out
Opening Bank Balance
500.00




Total Sales Income
1,461.19




Total Material Cost

1,148.15
Total Labour Cost

50.03



Fixed Overhead(2)

124.11
Promotion Cost

40.00
Factory Cost

650.00
Automation Expenditure

10.00
Tax Payment

5.67



Balance before Loan
(66.77)

New Loan
200.00

Closing Bank Balance
133.23



NX0441 Business Game Decision Form
Semester 1 2009/10
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