Use the Production area to determine schedules, capacity, and automation for each product. Assembly lines have an automation level and a production capacity. The automation rating indicates the amount of labor required for production assembly. Lower ratings require more manpower. Higher ratings require less manpower. 1st Shift Capacity is defined as the number of units the line can produce with a single shift in a one-year period. Companies can produce up to twice that amount by using a 2nd Shift.
Discontinue a Product
Selling all a product’s production capacity will discontinue the product. Capacity is sold on January 1 for 65% of the purchase price and any remaining inventory will be liquidated for half the average cost of production.
Production Definitions
Unit Sales Forecast The number entered under Your Sales Forecast on the Marketing spreadsheet. If a number has not been entered, the Production spreadsheet will use the Computer Prediction.
Inventory On Hand Unsold inventory from last year.
Production Schedule Number of units scheduled for production. The maximum possibility: Two times the 1st Shift Capacity.
Production after Adj Accounts Payable (The A/P Lag entered on the Marketing spreadsheet) and other conditions affect the availability of parts needed to build a product. This line adjusts production forecasts to account for material shortfalls.
2nd Shift/Overtime % The percentage of scheduled production run that will be produced on 2nd Shift or Overtime. Overtime only applies when the optional Human Resources Module is activated.
Labor Cost per Unit The labor cost in dollars to produce each unit (including 2nd Shift /Overtime wages and benefits).
Material Cost per Unit Material cost for each unit.
Total Unit Cost Material cost plus labor cost.
Contribution Margin Gross profit made on each unit (unit cost divided by price). Unit cost is the sum of labor and material cost.
Capacity and Automation
1st Shift Capacity The number of units, in thousands, that can be produced each year running a single eight hour shift.
Buy/Sell Capacity The number of units of capacity to buy or sell, in thousands of units. There is a one-year lag before new capacity becomes available. That is, it is not available for this year’s production, but will be available next year. Capacity purchase price depends on the current automation level. Capacity must be purchased for new products. If it is not the products cannot be built. Capacity can be sold by entering a negative number to indicate the amount you wish to eliminate. Capacity is sold on January 1 for 65% of the purchase price. When capacity is sold, the sale completes immediately and the money is available in the current round.Selling off all capacity will terminate a product.
New Automation Rating The automation level wanted for the following round. This is the total level, not incremental. For example, to raise a level from 5.0 to 6.0, enter 6.0. There is a one-year lag before the new automation becomes available. A rating of 1.0 equals little automation and significant labor costs. A rating of 10.0 equals heavy automation with few workers. For every point of change (up or down) companies are charged $4 per unit of capacity; changing an assembly line with 1 million units of capacity from an automation of 5.0 to an automation of 6.0 would cost $4 million. An automation level of at least 1.0 must be assigned to new production lines.
Investment The cost in thousands of dollars to add new capacity and/or change automation levels. Investments are limited to the capital budget limit defined below.
The dollar value of capacity and automation purchases is determined by the maximum amount that can be raised through bond issues plus excess working capital minus the total amount of stock dividends to be paid in the current year. Excess working capital is calculated as follows:
Working Capital = Current Assets - Current Liabilities
90 Days of Sales = 90/365 Sales
Excess Working Capital = Working Capital - 90 Days of Sales
Note: For most companies, Excess Working Capital will be zero.
Workforce Complement
Workforce Complement The workforce row reflects the number of workers employed by the company. If the Human Resource Module is off, the row will adjust automatically as production schedules are entered. If the Human Resource Module is active, the Workforce Complement cell will turn green, and further action is required (see Human Resources under Additional Modules for more information).