VIEWS: 9 PAGES: 23 POSTED ON: 10/27/2011
Appendix A The First Trial Decision The First Trial Decision For the First Trial Decision, each firm must make decisions for the following… – Marketing Decisions – Quality Control Decisions – Finance Decisions – Purchase Product From Peacock Industries You can buy from Peacock Industries, (Introfirm18) at the starting prices listed in Appendix A of your text P1 = $80 P2 = $115 Marketing Decisions Prices Advertising Sales Reps Trainees Sales Rep Salaries Commissions Credit Policy Prices Set Prices for each product type/area your firm is selling – At this point your firm does not have any information to base price on except COST. Once the non-trial decisions have begun your firm can experiment with prices based on demand and/or competition. (Methods of pricing are discussed in Chapter 4 of your text.) Typical price ranges for product are as follows… P1 ranges between $90- $250 P2 ranges between $125-$350 – Price decisions for area 2 must be entered in EUROs. You can find the exchange rate in “The Boss”. Advertising Advertisingbudgets must be entered for each product in each area where you are going to sell All advertising budgets are entered in dollars (even ad budgets for the EU) If you are selling both Product 1 and Product 2 in the NAFTA and EU regions (area 1 and area 2), you will need a total of 4 advertising entries Advertising budgets typically range between $5000- $75,000 per product/area. Sales Reps Enter the total number of sales reps you want in each area – The total number of sales reps you need will depend on your firm’s strategy Typical ranges of sales reps are between 2 – 20 in each area A firm does not need sales reps in an area they are not selling in Sales reps have a one-time hiring fee of $12,000 each (miscellaneous expense – shown on the income statement). This is in addition to any salary you pay them – It may be a cost effective decision to hire only a portion of the total reps you want in each area as experienced sales reps, and hire the rest as trainees Trainees Trainees can be hired and trained in one quarter, and would be ready to be placed as sales reps in the following quarter Trainees cost $3,000 to hire and train, and $3,000 to place as sales reps, for a total cost of $6,000 (miscellaneous expense – shown on the income statement) You must make a decision to place trainees as sales reps the quarter after you hire them, or they will go through the training again at the cost of $3,000 each. Sales Rep Salaries The amount of salary your firm will pay each sales rep per quarter Typical starting salaries range between $1000-$4,000 All salary decisions are in dollars Your firm must enter a salary decision for each area where your firm has hired sales reps Sales reps can quit if they are not getting paid, or if they feel they are not being paid enough. (Comparisons are made between firms in a market group.) Commissions Enter the amount your firm will pay each sales rep for EACH UNIT of product they sell Entries are in dollars and or cents for both areas Enter a commission for each product in each area where your firm is selling product If you have a high salary and/or high advertising and QC budgets, your firm may be able to pay a lower commission rate. – Typical starting commission rates range between .50 cents - $3 – It is possible to start out lower and increase as necessary to claim more market share Credit Policy This entry will define which retail stores your firm will accept as customers and is determined by entering one of the following numbers 0 = no policy; the firm will accept any buyers regardless of credit history 1 = take almost all orders unless the retailer is near bankruptcy 2 = exclude those with poor credit history 3 = same as 2 but requires a positive credit reference 4 = same as 3 but new buyers must be with firm for two quarters until large orders are accepted 5 = retail buyer must have a bank reference and be in business two years *A strict credit policy may reduce sales volume. Your policy should be measured against bad debts expense (shown on the income statement) Budget Decision Quality Control * DO NOT ENTER BUDGET DECISIONS FOR ENGINEERING STUDIES AND PRODUCT IMPOROVEMENT. These budgets are only necessary for manufacturing firms. Your firm will not benefit from such expenditures and would only be wasting money. Quality Control Your firm must enter a Quality Control Budget, regardless of the fact that you are not manufacturing your own product A QC budget will ensure that your firm accepts only the best quality product from your suppliers, that your product is well-kept while in your control, and that product is shipped to your clients in good condition QC Decision Entry QC decisions are entered as a TOTAL dollar budget for all products/areas. You must also enter a percentage of that total budget, which will be spent on Product 2 – Do not add any percentage signs or commas Determining the QC Budget Remember that the Scent Industry is extremely quality sensitive. If you have priced your product among the most elite of brands, you had better have the QC to back it up. Although the QC budget is entered as a total budget, it should be based on a per unit amount to ensure a consistent quality level from quarter to quarter. This means that your QC budget will be different each quarter, depending on the number of units your firm is buying, plus any in inventory Typical QC budgets range between .75 cents - $6 per unit Example of Setting a QC Budget Firm A, has a very low price and intends to be a designer imposter brand. They are selling both products in both areas and have decided on the following… --10,000 units of each type of product in each area -- .40 cents for each unit of product 10,000 x 4 (p1 and p2 in area 1 and area 2) = 40,000 40,000 x .40 = 16,000 So, this firm’s entry would be as follows: Total QC budget 16000 Percentage of budget to be spent on P2 50 Finance Decisions Choose a set of Finance decisions based on your firm’s vision for market share and risk tolerance Market Share Ambitions Matched With Stock Only Financing Desired 10% 20% 30% 40% 50% Market Share Risk Tolerance !! ! !! !!!! !!!!!! Return Potential $$$ $ $$$ $$$$ $$$$$$ Number of Shares 400,000 600,000 1,000,000 1,400,000 2,000,000 to Issue Market Share Ambitions Matched with Stock & Debt Financing Desired 10% 20% 30% 40% 50% Market Share Risk !!!! !!! !!!! !!!!!! !!!!!!!! Return Potential $$$$$ $$$ $$$$$ $$$$$$$$ $$$$$$$$$ $$$ Number of Shares to 300,000 400,000 500,000 700,000 1,000,000 Issue Dollar value of Bonds $1,000,000 $1,200,000 $1,500,000 $2,000,000 $2,500,000 Example of Finance Decision Selection If your firm were willing to take on significant risk in order to pursue huge returns by dominating and controlling 50% of your markets, your firm might make the following financial decisions: Issue 1,000,000 shares of stock (raising about $2,750,000) Issue $2,500,000 in Bonds (In $ not the number of bonds sold) Don’t Panic! This is only a trial decision. Trial decisions are for practice and for gathering information. You will start from scratch again in your next trial decision. If your financial decision package does not match well with your marketing plan your firm will have that much more incentive to read and understand the finance chapter. To Enter Decisions Go to the AGV website: www.globalview.org Click on the “Simulation” tab at the top of the page: Enter your login and password using all lower case letters, then hit submit: Login: introfirmXX Password: XXXX Submit Click on the name of the decision form you want to fill out + Firm Profile - Intro Game - Decision Menu Marketing Financial Budget Shipping + Contract Menus + Firm Reports + Industry Reports To Get To The Contracts Menu + Firm Profile - Intro Game +Decision Menu - Contract Menu Buy/Sell Contract Provide/Procure Consulting Services +Firm Reports + Market Group Reports Buy Contract O Sell Contract ____ Enter the firm number of the ADVANCED team you have a contract with 18 Enter the firm number of the INTRO team you have a contract with. Product 1 Product 2 Enter the Total Number of units 7000 Enter the Total Cost per unit 115 Enter the Area you want the Product shipped FROM 1 Enter the Area you want the product shipped TO 1 SUBMIT Contract Confirmation Read over the details of the contract you entered. If the contract details look correct, you will have several options… Execute – select this option if you want the contract to go through as confirmed above Wait for approval – select this option if you want the other firm involved in the contract to look the contract over and execute it. Do not use this option when your contract is with Peacock. Defer Decision – Select this option if you want to think the contract over before executing. Cancel – Select this option if you want to cancel the contract.
Pages to are hidden for
"AppendixA"Please download to view full document