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Business simulation

Year 11 Economics. Business simulation. The government has imposed new health and safety laws. The cost of safety training will be $30,000. You hope this will reduce stoppages and increase output by 5% Do you Introduce the training Do nothing and risk a fine. Situation 1. Option one

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Business simulation

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  1. Year 11 Economics Business simulation

  2. The government has imposed new health and safety laws. The cost of safety training will be $30,000. You hope this will reduce stoppages and increase output by 5% Do you Introduce the training Do nothing and risk a fine Situation 1

  3. Option one • Total costs increase $30,000 (staff training) • Increase output by 500 units • Option two • An inspector arrives and fines you $40,000 • Add $30,000 to total costs • Increase output by 500 units Outcome

  4. Your production manager wants to break up the task of making the skis into several smaller jobs and retrain the staff. Training costs will be $45,000 but output should increase by 20% and raw materials cost increases by $20,000 Do you Introduce the change Do nothing Situation 2

  5. Option one • Increase output by 2000 units • Increase total costs by $45,000 (training) • Increase total costs by $20,000 (raw materials) • Option two • No changes Outcome

  6. You are considering installing sprinklers and improving fire safety. This will cost $12,000. You estimate the risk of fire is <2% Do you Install sprinklers Do nothing Situation 3

  7. Option one • Add $12,000 to total costs • Option two • There is no fire but your insurance company is not happy and increases your insurance premium so total costs increase by $10,000 Outcome

  8. Due to the removal of import barriers the local market is flooded by cheap skis from overseas. You consider increasing advertising which will cost $60,000 Do you Advertise Not advertise Situation 4

  9. Option one • Increase total costs by $60,000 (advertising) • Option two • The flood of cheap imports forces you to cut your output by 2,000 units Outcome

  10. Your factory staff are demanding a 10% pay rise or they will strike. If they do strike your annual output will fall by 10% from last year. Do you Accept the pay rise Ignore the threat Situation 5

  11. Option one • Increase total costs by $15,000 (wages) • Option two • The strike does not work and they return to work. However output falls by 1000 units Outcome

  12. Your molding machine is getting old and causing an estimated 5 - 10% reduction in output. A new machine will increase output by 1000 units but will cost $50,000 a year to lease. It will also effect the cost of raw materials Do you Lease the machine Keep using the old machine Situation 6

  13. Option one • Increase output by 1000 units • Increase total costs by $50,000 (lease costs) • Increase total costs by $4,000 (raw materials) • Option two • Reduce output by 500 • It keeps breaking down so increase total costs by $5,000 Outcome

  14. You want to buy the warehouse next door so you can reduce your rental costs of your current warehouse. You will need to borrow $500,000 at 8% interest but it will save you $45,000 in rent. Do you Buy the warehouse Not buy the warehouse Situation 7

  15. Option one • Interest costs up by $40,000 but rent down by $45,000 so total costs down by $5,000. • Option two • No change Outcome

  16. You want to expand your business by taking over a rival ski maker. This will increase wages costs by $100,000, rent $20,000, freight by $10,000, machinery by $10,000, raw materials by $120,000, power by $2,000, staff training by $5,000 but will also increase output by 10,000 and help you compete with the increasing imports of skis from overseas. Do you Expand Not expand Situation 8

  17. Option one • Increase total costs by $277,000 • Output up 10,000 • Option two • Increase overseas supply means you have to sack some of your workers resulting in a output drop of 1,000. Outcome

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