WEB MICROMATIC SUMMARY FACT SHEET

(In Quarter 1)

THE MARKET

• Three sales regions. Regions 1 and 2 are in the United States . Region 3 is in Europe and uses Euros (€) as its currency. Current € to $ Conversion is $1.20. There are no tariffs in Quarter 1.
• Sales potential = the sales forecast (average company demand) times the number of companies in the industry.
• The sales you achieve (versus forecast) in each region is determined by (a) your marketing effort relative to the marketing effort of other companies and (b) the total demand for all companies. Marketing effort is composed of the price, the change in sales price from the prior quarter, the quality of the product, the number of pages of local newspaper advertising, the number of pages of trade publication advertising, the money spent on web marketing, the number of product features, the accuracy of the ad message, and the number of salesreps.

MARKETING

SALES PRICE

• The Quarter 0 sales price was $40 in Regions 1 & 2 and €40 in Region 3.

PRODUCT QUALITY

• Product quality is entered as an operating decision, but is also displayed with your Marketing decisions. The money spent on quality affects both product cost and sales.

TRADE PUBLICATIONS

• Cost $3,000 per page in Regions 1 & 2, €3,000 per page in Region 3.
• Has an effect on sales in the quarter you purchase the ad and in the following quarter.
• Affects only the region in which you purchase the ad.
• Maximum number of pages you can buy in a quarter per region is 99.

LOCAL NEWSPAPER ADVERTISING

• Costs $900 per page in Regions 1 & 2, €900 per page in Region 3
• Has an impact on sales only in the quarter in which you purchase the ad.
• Affects only the region in which you purchase the ad.
• Maximum number of pages you can buy in a quarter per region is 99.

WEB MARKETING

• The money spent promoting your product on the WWW affects sales in all regions

FEATURES DEVELOPMENT

• Product features are enhancements made to the product to make it more marketable.
• The total number of product features added to the product affects sales.
• Money spent on Features Development is spent on research to discover new features to add to your product.
• It is unknown how much you need to spend to create a feature, but it is known that the more you spend the more likely a feature will be created. Any money spent in a quarter is accumulated into a total spending account. It is total spending on features development that determines whether a feature is created.

AD MESSAGE

• The ad message selected (Price, Quality, Service, Features, General) affects sales based on the accuracy of the message. For example, if your message is quality and your quality is less than the average quality in the industry, you will be penalized with fewer sales.

SALESREPS

• Salary is $3,500 per quarter per salesrep in Regions 1 & 2, €3,500 per page in Region 3.
• Salesreps hired in a quarter will be trained in that quarter and be ready to promote sales in the following quarter.

• For the quarter during which a salesrep is hired, for each salesrep hired there is:

• A hiring cost of $1,100 in Regions 1 & 2, €1,100 in Region 3.
• A training cost of $3,500 in Regions 1 & 2, €3,500 in Region 3.
• A salary cost of $3,500 in Regions 1 & 2, €3,500 in Region 3.

• You can hire at most 99 salesreps per region each quarter.

• You can pay salesreps a commission in an effort to increase salesperson performance. The higher the commission, the more motivated the salesrep is to promote your product.
• You can transfer a salesreps to another region for $5,000. All salesrep transfers are in $.
• The salesreps leave the company at the end of the quarter in which you discharge them.
• If you have a stock out in a region, you will lose one salesrep unless you have no salesreps in that region.

MARKETING RESEARCH

• Click on the box (þ) for the research information desired.
• You have two options for purchasing Sales Potential information.

• Sales Potential for the Next 4 Quarters provides the average demand per company for each of the next 4 quarters.
• The second research item on sales potential allows you to buy information on one quarter that you select. If you select this option, you must also enter the quarter number for which you desire information.

• For all other marketing research options you select, you will receive information for all companies in the industry.
• The cost of the research option you select is shown on the screen. That is the total cost for the item selected, regardless of the number of companies operating in the industry.

OPERATIONS

RAW MATERIALS

• Raw material purchase costs are as follows. Costs in are in Euros (€).

                  1 – 9,999         $ 10 per unit in Regions 1 & 2,      € 10 per unit Region 3.

       10,000 – 19,999           $ 9 per unit in Regions 1 & 2,        € 9 per unit Region 3.

    20,000 and above           $ 8 per unit in Regions 1 & 2,        € 8 per unit Region 3.

• Price breaks are based on purchases by region, not by the total for all regions.
• Raw Materials ordered in a quarter are delivered in the following quarter. For example, raw materials purchased in Quarter 2 will be delivered in Quarter 3.
• Raw Materials are paid for in the quarter in which they are received; ie, COD.
• A 7% probability exists that only 80% of the raw material order will be delivered. The remaining 20% will never arrive and you will have to reorder it if you need it.
• Raw materials carrying cost is $1.00 times the beginning units in raw material inventory.
• Selecting the Liquidate option allows you to sell off all raw material inventory that you have in a region. If you choose this option, you will receive 50% of the value of inventory as shown on the Raw Material Report.

WORK FORCE

• Wages are $2,500 per worker per quarter in Regions 1 & 2, €2,500 in Region 3.
• The cost to hire a new worker is $3,000 plus the regular wages in Regions 1 & 2, €3,000 plus the regular wages in Region 3.

• You need to hire workers one quarter in advance of the first day of work, e.g., if you hire workers in Quarter 2, they will be available in Quarter 3.

• You need three people to form a crew. You are unable to produce with a partial crew.

• Each crew can produce 1,000 units without overtime.
• A crew can produce a maximum of 20% above its normal capacity. For example, if a crew’s productivity is 1,000 units, the most it can produce is 1,200 units. The first 1,000 units would be produced at regular time. The last 200 units charged at the overtime rate.

• Overtime is $15.00/unit in Regions 1 & 2, €15.00/unit in Region 3.
• Worker turnover is 10%. This is computed based upon the number of workers in each region. There is a 7% probability that you'll lose one additional worker per region and a 3% probability that you'll loss two additional workers per region.
• Discharged workers leave at the beginning of the quarter. They are discharged before turnover is calculated.
• Laid off workers leave at the beginning of the quarter. They return automatically the next quarter. The cost to lay off workers is $1,000 per worker in Regions 1 & 2, €1,000/unit in Region 3.
• Manufacturing Costs

• Total manufacturing costs are direct material, direct labor, and overhead costs plus depreciation.
• Overhead costs are equal to 50% of the total labor cost.

FINISHED GOODS

• You can subcontract the production of your product with a local manufacturer. Units purchased from a subcontractor are available for sale in the same quarter as purchased.

• The cost of subcontracted units is shown on the Material and Inventory Costs screen.

• Production is limited by the number of full crews available, crew productivity, plant capacity, and the number of units of raw material available. Enter the number of units you wish to produce during the quarter, subject to the limitations described.
• Money spent on quality increases the attractiveness of the product in the marketplace and the cost to produce it.
• Finished goods carrying costs is $2.00 times the beginning units in finished goods inventory.

PRODUCT TRANSFERS

• Enter the number of units you wish to transfer from one region to another region.

• Transfer costs are $4.00 per unit per region. All transfers are charged in $.

PLANT

• You must have a minimum of 5000 units of capacity to operate in Region 1 and a minimum of 3000 units of capacity to operate in Regions 2 and 3. This applies to both plants purchased and plants leased.
• Depreciation is computed straight line over 20 quarters.
• Money spent on plant maintenance affects the cost of manufacturing your product.
• Adding plant capacity

• Build new plant.

·         Enter the number of units of production capacity you desire.

·         Current cost is $100,000 per 1,000 units in Regions 1 and 2, and €100,000 per 1,000 units in Region 3

·         The minimum purchase is 1,000 units.

·         Payment terms are 20% down, 80% the next quarter.

·         There is a two quarter delay from when plant capacity is purchased and when it is ready for producing product. For example, if purchased in Quarter 2, the plant is in construction in Quarter 3, and operational in Quarter 4.

• Lease plant.

·         Enter the number of units of production capacity you desire.

·         The minimum lease is 1,000 units.

·         You can lease a plant for 4 quarters or 8 quarters.

·         Current lease cost is $7 per unit for a 4 quarter lease and 6$ per unit for an 8 quarter lease. Costs in Region 3 are in Euros (€).

·         There is a one quarter delay from when plant capacity is leased and when it is ready for producing product. For example, if a lease is purchased in Quarter 2, the plant is operational in Quarter 3.

• Administrative Costs

• There is a fixed administrative charge of $25,000 for operating its plant in Region 1.

• There is an additional charge of $15,000 if you have a plant operating in Region 2.
• There is an additional charge of €25,000 if you have a plant operating in Region 3.

• Additional administrative charges begin in the quarter after you order additional capacity in a new region.

• If you sell plant capacity,

·         You must sell the oldest plant capacity first.

·         You must sell a minimum of 1000 units.

·         You can use the units sold in the current quarter.

·         You lose the capacity at the beginning of the following quarter.

·         You will receive the cash from the sale of the plant in the following quarter.

• Technological improvements

• There is a one quarter delay from when you purchase a tech improvement until it is operational.
• You pay for a tech improvement the quarter after you order it.
• If you technologically improve capacity in a region, you must technologically improve any additional plant capacity added in that region.
• Costs are amortized via a depreciation charge over 20 quarters.
• You make capital investments (such as purchasing pollution control equipment) by entering the cost and leaving crew size and productivity set to 0 on the student decision entry.
• If you choose to sell a tech improvement, the selling price is its book value.

FINANCE

• Short-term loan requests are received in the quarter requested.

• The maximum amount you can request is displayed as your line of credit on the financial decisions screen. In Quarter 1, your line of credit is $400,000.
• You are required to repay what you borrowed in the following two quarters in two equal payments. For example, if you borrowed $100,000 in Quarter 2, you will pay $50,000 in Quarter 3, and $50,000 in Quarter 4.

• You can make an extra payment on your short-term loan to pay it off early, if you desire.

• The base rate is 10% adjusted for your debt asset ratio at the beginning of the quarter.

• Short-term Investment deposits are paid in the quarter in which they are made.

• Interest income is paid the quarter after you have made an investment.
• Current investment rate is 5%.

• Withdrawals of short-term investment are received in the quarter requested.
• Dividends issued are paid in the quarter in which they were issued.

• In order to influence the stock price, the dividends must be at least $.05 per share.
• You retire stock before you declare any dividends each quarter.
• The program will not allow payment of dividends if accumulated retained earnings are less than $0.
• You pay dividends the quarter that you declare them. If you declare a dividend in Quarter 2, you will pay it in Quarter 3.

• Stock issues are received in the quarter requested.

• You cannot issue stock for less than the $10 par value.
• The minimum number of shares you can issue in a quarter is 1,000 shares
• The maximum number of shares you can issue in a quarter is 10,000 shares
• You will pay a broker's fees on all stock transactions.
• The Minimum # Shares Outstanding that you can have is 120,000 shares.
• The Maximum # Shares Outstanding that you can have is 240,000 shares.

• Stock retirements are paid in the quarter in which they were purchased (i.e., retired).
• The stock price is determined by previous price, earnings or losses per share, continuous quarters of profit or loss, amount of dividends, number of continuous quarters that you pay dividends, price-earnings ratio, and random market factors.

• Bond sales are received in the quarter requested.

• All companies start with one bond.
• The Moody’s composite rate for your company will be as follows (place this number on the “Moody’s AA composite rate” line):
• • • 11.00% for the bottom third of firms (i.e., firms 7 through 9) in the industry (game-to-date);
    • 9.00% for the middle third of the firms (i.e., firms 4 through 6) in the industry (game-to-date);
    • 8.00% for the top third of the firms (i.e., firms 1 through 3) in the industry (game-to-date)
    • You must notify the instructor that you are issuing a bond and indicate the quarter of issue!
• Bond repayment is paid over the 20 quarters following the issuance of the bond.
• Interest payment on new bonds starts the quarter after you receive the bond and continues until the bond is paid off.
• There is an added charge of a 3% prepayment penalty on additional bond payments.
• You can make an extra payment on your first bond to reduce its outstanding balance.
• The maximum number of bonds outstanding at any one time is two (2).

• To get an additional bond, you must to retire the first bond. You would ask for the additional money to retire the first bond with your new bond request. If the computer denies a bond request, the extra payment for the first bond is insufficient. The program will accept extra payments greater than necessary, but not less.

INCOME TAXES

·         The income tax is 50% of pretax income.

·         No taxes are paid when a loss occurs in a quarter, except for the fourth quarter when the program makes end-of-year adjustments in taxes paid in order to make the cumulative effective rate 50% on earnings for the year.

CASH FLOW

Cash Receipts

• 50% of sales revenues are received as cash in the quarter the sale is made.

• The remaining 50% becomes Accounts Receivable and is collected as cash in the next quarter. There is no bad debt.

• Stock issues and bond sales are received in the quarter requested.
• The sale of plant capacity is received one quarter after you sell the plant. For example, if you sell plant capacity in Quarter 2, you can use the plant in Quarter 2. You will lose the plant capacity at the beginning of Quarter 3 and receive the cash in Quarter 3.
• Interest earned on short-term investment is received the quarter after you make the investment.
• Withdrawals of short-term investment are received in the quarter requested.
• Short-term loan requests are received in the quarter requested.

• The maximum amount you can request is displayed as your line of credit on the financial decisions screen. In Quarter 1, your line of credit is $400,000.

Cash Disbursements

• Raw material purchases are paid the quarter after you ordered the materials. The payment includes the cost of carrying raw material in inventory from last quarter into the current quarter.
• Subcontract units pay in the current quarter.
• Interest charges on short-term loans are paid the quarter after the loan is received.
• Interest charges on bonds sold are paid over 20 quarters beginning one quarter after the bond is sold; all bonds are 20 quarter bonds.
• Dividends issued are paid in the quarter in which they were issued.
• Income taxes are paid in the quarter after you incur the tax obligation. For example, if you earn a profit in Quarter 1, you will have to pay taxes on that profit in Quarter 2. So, the amount shown as “Provision for Income Taxes” on the Income Statement is not paid in cash until the following quarter.
• Bond retirement begins the quarter following the sale of the bond. A bond is retired in 20 equal payments.
• Stock retirements are paid in the quarter in which they were purchased (i.e., retired).
• Payments for the purchase of plant capacity are 20% down and 80% in the following quarter.
• Payments on a Plant Lease begin the quarter following the lease purchase.
• A Short-term loan is paid in two equal payments in the two quarters after it was received.
• Maintenance is paid in the current quarter.
• Investment deposits are paid in the quarter in which they are made.
• Labor, quality, and overhead expenses are paid in the quarter in which they are incurred.
• Warehouse operations are paid in the quarter in which they are incurred.
• S & A payments are paid in the quarter in which they are incurred.
• An Emergency Loan appears if your cash payments are greater than your cash receipts, plus any short-term loan request you entered.

·  If this occurs, your short-term loan request is denied and your company is given an emergency loan to bring your cash balance up to zero. The interest rate on this emergency loan is double the standard interest rate up to a maximum rate of 30%, depending upon your company's debt-asset ratio.