BUSINESS SIMULATIONYear 10 Accounting and Economics

SITUATION 1

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 you1. Introduce the training2. Do nothing and risk a fine

OUTCOME

1. Option one Total costs increase $30,000 (staff

training) Increase output by 500 units

2. Option two An inspector arrives and fines you

$40,000 Add $30,000 to total costs Increase output by 500 units

SITUATION 2

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 you1. Introduce the change2. Do nothing

OUTCOME

1. Option one Increase output by 2000 units Increase total costs by $45,000 (training) Increase total costs by $20,000 (raw

materials)

2. Option two No changes

SITUATION 3

You are considering installing sprinklers and improving fire safety. This will cost $12,000. You estimate the risk of fire is <2%

Do you1. Install sprinklers2. Do nothing

OUTCOME

1. Option one Add $12,000 to total costs

2. 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

SITUATION 4

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 you1. Advertise2. Not advertise

OUTCOME

1. Option one Increase total costs by $60,000

(advertising)

2. Option two The flood of cheap imports forces you to

cut your output by 2,000 units

SITUATION 5

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 you1. Accept the pay rise2. Ignore the threat

OUTCOME

1. Option one Increase total costs by $15,000 (wages)

2. Option two The strike does not work and they return

to work. However output falls by 1000 units

SITUATION 6

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 you1. Lease the machine2. Keep using the old machine

OUTCOME

1. Option one Increase output by 1000 units Increase total costs by $50,000 (lease

costs) Increase total costs by $4,000 (raw

materials)

2. Option two Reduce output by 500 It keeps breaking down so increase total

costs by $5,000

SITUATION 7

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 you1. Buy the warehouse2. Not buy the warehouse

OUTCOME

1. Option one Interest costs up by $40,000 but rent

down by $45,000 so total costs down by $5,000.

2. Option two No change

SITUATION 8

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 you1. Expand2. Not expand

OUTCOME

1. Option one Increase total costs by $277,000 Output up 10,000

2. Option two Increase overseas supply means you have

to sack some of your workers resulting in a output drop of 1,000.