Professional Documents
Culture Documents
Contents
Getting Started ....................................................................................................................................................................... 1 Stage 1: Procure Land & Machinery ............................................................................................................................ 1 Stage 2: Make your Production Plan ........................................................................................................................... 2 Judging Criteria ..................................................................................................................................................................... 2 Relevant Data ......................................................................................................................................................................... 3 Illustration ............................................................................................................................................................................... 4
Getting Started
Youre an entrepreneur and are setting up your companys first manufacturing plant. First of all, you need to bid for land and machinery (mandatory inputs). Once you get the land and machinery you wanted (or got stuck with), youll need to buy trucks to transport your output to the market (revenue will be realized only if your output reaches the market). Additionally, you can go for technology upgrades, labor training sessions (nonmandatory inputs) with the remaining capital to reduce your marginal cost of production. Your initial capital is Rs. 5 crore. If you still want more, you can take a debt at any time @15% p.a. Price for your product is determined by a predetermined demand function. Youre a true capitalist and your only aim is to maximize profits. Good luck!
1|Page
Judging Criteria
Teams with maximum profit in the first year will win. The Relevant Data and Illustration is given on the following pages.
2|Page
Relevant Data
Average Cost (operational):
where values of A and B for different combinations of land and machinery are given as follows:
L1 A M1 M2 M3 M4 9 11 12 10 B 2 15 60 30 A 12 9 10 11 L2 B 15 60 2 30 A 10 12 11 9 L3 B 60 2 8 30 A 11 10 9 12 L4 B 60 15 20 30
Base Price for Mandatory items (in Rs.) L1 80,00,000 L2 80,00,000 L3 60,00,000 L4 1,00,00,000 M1 60,00,000 M2 40,00,000 M3 60,00,000 M4 80,00,000 Maximum Output of Machine (in kgs per day) M1 18,000 M2 14,000 M3 12,000 M4 10,000 Fixed Costs of upgrades (in Rs): Technology (U1*) 10,00,000 per unit Labor Training (U2) 5,00,000 per unit Truck (T) 10,00,000 per unit *U1 is capped at 8 units Truck carrying capacity: 8,000 kg Inventory holding cost: Rs 1/- per kg/day Interest Rate: 15% p.a. Demand Function: Q (in thousands) = 24-P Payoff Matrix: Average cost for producing one unit of product with each land machine combination can be calculated by substituting the values of A and B given in the payoff matrix into the formula for AC(Q).
3|Page
Net profit can be calculated as follows: Net Profit = Total revenue (p*q) - Cost of mandatory inputs (land + Machinery) Cost of Trucks - Cost of Technology Upgrade- Cost of Labor Training - Cost of debt if taken Inventory holding cost - Operational cost (AC*q)
Illustration
Stage 1: Team X bid for Land and machinery in the following preference order: Land Type L2 L1 L3 L4 Machine Type M1 M2 M3 M4 Preference Order 3 1 2 4 Preference Order 1 2 3 4 Bid Amount 2,10,00,000 2,50,00,000 1,10,00,000 80,00,000 Bid Amount 1,25,00,000 1,10,00,000 90,00,000 30,00,000
Lets assume Team Xs bids for L3 and M3 got cleared. Therefore, Team X will be allotted L3 and M3 at Rs. 1.10 cr and Rs. 90 lac respectively. So after bidding, Team X is left with L3 and M3 and cash of 3 cr (= 5 1.1 0.9). Stage 2: M3 can produce maximum 12,000 units per day. Now Team X has to decide what amount of U1 and U2 to buy, how many trucks to buy and the quantity of output to be produced. Team X decides to buy 8 units of U1 and 2 units of U2 and 2 trucks to transport its products to market. So basically team 1 is spending 110,00,000 more on these inputs and is finally left with 1,90,00,000 rupees (= 3 1.10). If team X decides to produce 8000 units per day, average operating cost is basically Rs 3.8 per kg per day. Using the inverse demand function we can see that the price of its product will be P = 24-8 = Rs 16 per unit. Therefore the annual cost of producing 8000 units per day is = 8000*365*3.8 = 1,10,96,000. Since the amount left with Team X was Rs. 1.90 cr, it will not have to take debt in order to operate at this capacity. Hence the net profit for firm can be calculated as = Total Revenue Operational cost Cost of add ons Cost of bidded inputs Interest on Debt = 16*8000*365 3.8*8000*365 1,10,00,000 2,00,00,000 - 0 = 46,24,000 Net profit =46,24,000 4|Page
Hence company makes a profit of Rs 46.24 lakhs and its ranking will be based on this value. Examples of truck schedule: Case 1: If I produce 16,000 kg/day and have 4 trucks, and I decide to send 2 trucks daily carrying 8000/- kg each then, Day 1: Production = 16,000 kgs Transported = 16,000 kgs (2 trucks sent) Remaining = 0 kgs Inventory holding cost = 0 Day 2: Production = 16,000 kgs Transported = 16,000 kgs (2 remaining trucks sent) Remaining = 0 kgs Inventory holding cost = 0 Hence, I will be able to transport the entire production of 16,000 kgs to the market. Case 2: If I produce 10,000 kg/day and have 2 trucks, and I decide to send 0 trucks on first day and 2 trucks carrying 16kg (max possible) total on the second day then, Day 1: Production = 10,000 kgs Transported = 0 kgs (No truck is sent) Remaining = 10,000 kgs Inventory holding cost = 10,000/Day 2: Production = 10,000 kgs Transported = 16,000 kgs (2 trucks are sent) Remaining = 4,000 kgs Inventory holding cost = 4,000/Hence for every 2 day cycle, 16,000 kgs will be transported and inventory holding cost of 14,000 (10,000 + 4,000) is charged. This is repeated for the entire year (182 cycles). In the above example, if I have 4 trucks, I can use 2 every day and avoid any wastage or inventory holding cost.
5|Page