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Production must take into account Marketing’s Sales Forecast, minus any unsold inventory from the previous year, when deciding how many units to manufacture for the upcoming year (Inventory on Hand). A year’s worth of production will be determined by your Production Department. It is also in charge of acquiring and disposing of manufacturing facilities.

Capacity

First-shift: With a daily eight-hour shift, an assembly line’s capacity is the number of units it can create in a year. With the addition of a second shift, an assembly line’s capacity can be increased by up to two times its first-shift output. With a second shift, a production line with a capacity of 2,000,000 units per year can create 4,000,000 units. However, labor costs on the second shift are 50% more than on the first.

Each new capacity unit costs $6.00 in floor space and $4.00 times the Automation rating. The cost is calculated and displayed for you automatically by the simulation. In order for a capacity increase to take effect, you have to wait a full calendar year. On the dollar amount of the initial investment, capacity can be sold for $0.65 at the beginning of the year.

After a few years, you can upgrade your storage capacity for a fee. Selling capacity for less than its depreciated worth results in a write-off of income on your balance sheet. You will profit from the sale of your capacity if its depreciation is less than 65% of its original worth. This will appear on the company’s income statement as a write-off.

The maximum amount of capital that can be raised through stock and bond issuance, as well as any excess working capital, significantly determines the dollar value limit for capacity and automation investments. This number is displayed in the drop-down menu.

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Discontinuing a product

Your remaining inventory will be sold at half the average cost of production if you decide to retire a product in R&D. This is written down as a loss on your income statement. Sell everything except one unit of capacity if you wish to sell your merchandise for the full amount (then once inventory is sold through, sell the last unit).

Automation

The amount of labor hours required to create each unit decreases as automation levels rise. One is the lowest and one is the most in terms of how automated a certain system is. Labor costs are highest when automation is rated at 1.0. The cost of labor is reduced by about 10% for every new automation point. Labor costs drop by nearly 90% at a rating of 10.0. The cost of labor goes up every year because of the wage increases stipulated in the collective bargaining agreement. Despite the fact that automation is appealing, there are two things to keep in mind:

The cost of automation: In other words, increasing automation from 1.0 to 10.0 costs $36.00 per unit of capacity.
As automation increases, it becomes more difficult for R&D to reposition items within short distances on the Perceptual Map. For example, moving 1.0 on the map requires a lot more time with automation 8.0 than it does with automation 5.0. Long-distance moves aren’t as much of a problem. If you want to move a product large distances, you’ll need between 2.5 and 3 years to finish the endeavor.

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Changes to Automated Processes

The corporation gets paid $4.00 per unit of capacity for each point of automation adjustment, up or down. If a production line had a capacity of 1,000,000 units, it would cost $4,000,000 to upgrade the automation level from 5.0 to 6.0. The expense of reducing automation is high. Retooling costs will be incurred if you reduce Automation. In the long run, this means that you’ll be spending money to reduce the efficiency of your facility. Reducing automation can hasten R&D redesigns, but this is not a good idea in general.

Ten chores are a great way to think about automation and its effect on cost. All ten steps in the process of building a cell phone are doable by one person. That’s a very low automation level for a labor unit, because you would be doing all the job yourself (maybe an electric screwdriver).

Automated the first five tasks? That’s a level of 5. The more automated your facility is, the longer it takes to modernize it for new products. Positioning on the leading edge of technology is especially vital in high-tech segments. Too much automation will result in products that are unable to stay up with the ever-changing market. When it comes to Automation, it takes one full year for the changes to take effect.

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Finance

It is the responsibility of your Finance Department to see to it that your firm has enough money to last the year. The department has the option of issuing short-term bank notes, long-term bonds, or shares to raise money. In addition, the department has the option to pay dividends on its stock, buy back shares, or retire bonds ahead of schedule. Production notifies Finance when it requires additional funding for equipment purchases.

If Finance is unable to raise the necessary funds, Production can be told to reduce its requests or dispose off excess capacity. It’s the job of the Finance Department to keep tabs on the company’s spending. Financial decisions should be scrutinized by Marketing, as well as cross-checked by Marketing’s projections and prices.

How accurate are the forecasts? The rates that marketing has set, however, would customers be willing to pay them? The question is whether or not Production is producing too many or too few products. Is there a demand for extra production capacity? Has Production explored purchasing automation to reduce labor costs? The responsibilities of corporate financial officers vary widely from one organization to the next. Managing financial risk, calculating borrowing levels, and even writing checks are all possible responsibilities.

The department’s primary function is to keep tabs on the company’s cash flow, which is the lifeblood of any corporation.

There are five main concerns for your Finance Department:

Obtaining the funds necessary to grow the company’s plant and equipment. Current debt, stock and bond issuances, and profit-sharing arrangements are all viable methods of raising capital.

Second, creating a dividend policy that maximizes the return for investors establishing policies for accounts payable and receivable

The firm’s financial structure and the interplay between debt and equity are being driven by making decisions about what metrics to use and how to interpret them in light of your approach.All other departments’ decisions should come before financial ones. It is up to the Finance Department to deal with funding and structural difficulties after the management team has determined what resources the company need. This department’s job is to make that the company’s estimates and prices are accurate.

‘ Proforma cash flows can’t be accurately predicted if the pricing and expectations are unreasonable. Changing (but not saving) Marketing’s projections and then rechecking the proformas might give Finance a range of probable outcomes for the year. In the worst-case scenario, revenue is reduced and inventory is increased, whereas in the best-case scenario, revenue is increased and inventory is decreased.

Conclusion

In conclusion, I would like to state:

Please enter the simulation and select “Production” when prompted. Enter the following information for each product in this section:

A Timetable for the Production Process

A positive figure should be entered in the Buy/Sell Capacity field for first-shift capacity increases.

First-shift Capacity (Put a negative number in Buy/Sell Capacity.)
The level of automation has changed (Enter a number in New Automation Rating.)

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