BA 101 1st Edition Lecture 7 Outline of Last Lecture 1. Rehearsal tutorial 2. Lecture: AccountingOutline of Current Lecture I. Practice RoundsII. Lecture: Production: Productivity and PerformanceCurrent LectureI. Practice Rounds: Foundation processing changes, happened about a month ago, and now you need to follow this process for saving official decisions. You should have been walked through this process during the rehearsal tutorial but in case you were not:1. Log into capsim2. Go to your dashboard3. Click on decisions4. Click on launch web spreadsheet 5. Click on decisions and input your choices for each department6. When done, click on file and click on update official decisions7. Click on all team decisions8. When done, click on file and exitWhere I (Professor Durant) think you should be: - Learning concepts: managing risk and uncertainty, markets and market segments- Learning numbers: what does “contribution margin” mean?- Learning a decision environment: what does “reliability” mean in Foundation?Performance Targets (live round scoring): - Manage production efficiently: have a contribution margin of 30% or greater. - Manage cash: don’t run out. Have an ending cash balance of higher than $0These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Manage inventory: don’t run out, always have at least one unit left at the end of the year, but not more than 60 days’ worth of inventory at the end of the year. Your actual market share should be at least 95% or greater of your potential market share- Create wealth: Net income should be greater than $0 each round- Increase owner’s wealth: Stock price should increase each round- Each of these is worth one star in capsim, and three points towards your final grade. Each live round you can potentially earn 15 points towards your final grade in the classII. Lecture: Production:Inventory: all the inventory in foundation is considered to be finished goods. Some things you want to avoid are having too little inventory or “stocking out” because you are missing opportunities to make a profit, and are helping your competitors. You also want to avoid having too much inventory, because it is expensive to keep and ties up cash. Also your products age and become less desirable the longer you have them. The correct amount of inventory at the end of the year in foundation is 0 units > inventory > 60 days’ worth of inventory. Production and Inventory: you have a great Low tech product. You think you can sell 2,400 units this year. What does that mean for inventory management? You need to not stock out,and not have more than 60 days’ of inventory in your warehouse at the end of the year. 2,400 units a year is 200 a month. 60 days is 2 months or 1/6 of a year, =400 units. If you produce 2,800 units this year, you have some allowance for if you sell more than 2,400 units that year. But you have to sell 2,400 units or you will have more than 60 days’ of inventory. Sales forecasts and Production: How many units should I produce? Make your best sales estimate for the year and then add a “13th month” which will give you a little cushion by putting your production right in the middle of the 60 day amount. OR, make your best sales estimate, divide by 11, then multiply by 12, which gives you a little over a month’s worth of cushion. The third option is to generate a variety of guesses for your sales forecast and find a number that covers those options. Example: - 1,440 (market growth estimate)- 1350 (potential market share estimate)- 1,275 (December Customer Survey score estimate)The most you should produce is the lowest estimate plus two months’ worth, which would be 1,275+212=1,487. The least you should produce is the highest estimate plus one, which would be 1,440+1=1,441.1,450 is in between those two, and covers all your estimates, making it a good choice foryour production number. What if you already have 100 units in inventory? Subtract the number of units you have already from your production estimate. In this case, 1,450-100=1,350. Capacity: you can only produce so many units each shift. There are two shifts per year, the second one costs more, and they limit your capacity to produce sensors. There are a few ways to deal with this. You could increase your price, ensuring that you will sell less (remember for every dollar the price increases over the upper limit, your sales go down 10%), or you can buy more capacity. This will be discussed more thoroughly on Thursday.Due Dates: - Practice round one due tonight at midnight- Practice round two due Thursday at midnight- Quiz two due Thursday before