Why would you prepare a Worst Case sales forecast in the Marketing worksheet? What is the goal here?

Worst case relates to profitability, cash flow and inventory analysis and is addressed in the Marketing worksheet by entering the low end of your sales forecast. By doing so, you can then review your proforma financials to make sure you will have enough cash at the end of the year should such a scenario occur. If your worst case does come true, you will have excess inventory but enough cash to stay away from Big Al. Of course, you would need to produce at least as much as your lowest sales forecast on the Production worksheet. Note: Your proforma financial statements are largely based upon the sales forecast used in the Marketing worksheet (see Student Guide, pages 29 - 31).
1) 2) How can you use the same Marketing worksheet to develop a Best Case scenario? What is the goal here?

CapSim Solution Commentary: Acct 2220 Zeigler - AQ #5 Best Case-Worst Case, Fasttrack & Human Resources (15 Points)

By entering a large number in the sales forecast cells for each product (i.e. something high enough that you would sell all of your production), this will give you an idea of the highest profitability achievable. In essence, enter a number that supports the sale of ALL units of product. The result on your proforma Balance Sheet should indicate no inventory and a large cash balance.
3) How does this spread (i.e. two forecast extremes above) affect Production worksheet decisions?

The Best Case / Worst Case allows the team to develop an inventory production range (i.e. spread). As such, you plan for the worst (Marketing worksheet sales forecast) and produce for the best (on the Production worksheet). The question for management then becomes how much of an inventory buffer is desired?. One month? One quarter? Too little inventory invites a stock-out (lost profits). Too much (unsold) inventory consumes cash and incurs a 12% inventory carrying cost (Note: this inventory carrying cost is shown/detailed in your Annual Report Income Statement).
4) Per your Fasttrack, The Market Share report contains both Actual and Potential market share

information. Which of these two components should generally be used as part of your sales forecasting analysis? What exception to this general approach might apply here? Actual market share indicates what happened last round. Using Potential market share should be considered when forecasting next rounds sales. This prediction, however, may be affected by stock-outs of your, or your competitors, products.
5) Per page 3 of your Fasttrack, why is Depreciation listed as is a positive adjustment on the Statement of Cash

Flows? Why is depreciation, a non-cash expense, even shown on this cash flow statement? The format of the Stmt of Cash flows used in the sim represents the format you will see in the majority of, if not all, public company annual reports. In essence, this Reconciliation (aka: Indirect) method reconciles the difference between reported Net Income (accrual basis) and the actual cash flow (increase or decrease) incurred for the period. Since depreciation is deducted in arriving at net income, it must simply be added back on the Stmt of Cash Flows, as a positive adjustment ALWAYS, as part of this reconciliation process. An important concept to understand here.
6) In the Human Resources (HR) module, why does an increase in training require hiring more workers?

More workers are required to replace those who are in training. The more training, the more workers.
7) What is the default recruiting cost of hiring a new worker? What is the maximum additional amount per

worker that can be spent on recruiting costs? The default recruiting cost is $1,000 per worker to hire someone off the street. An additional $5,000 per worker recruited can be spent in an attempt to increase the caliber of the worker hired.
8) What happens to overtime, and employee turnover rates, when the number of workers is less than needed?

Production schedules drive the required complement determination. Both overtime and employee turnover (disgruntled employees) will increase when the required complement is not achieved. Further, the Productivity Index will be negatively affected.

Acct 2220 Zeigler: Human Resources Module questions - AQ#5 Commentary

9. Production runs can be scheduled in: A. only one shift B. always two shifts C. one or two shifts D. up to three shifts Up to twice the production line's First Shift Capacity can be scheduled for each individual product. Production runs that exceed the First Shift Capacity result in either Overtime and/or a Second Shift, depending on the Worker Complement. 10. Hiring/Scheduling the Needed Complement of workers will always eliminate: A. Overtime B. worker layoffs C. a Second Shift D. strikes Hiring the Needed Complement eliminates all Overtime. The Second Shift workers are paid the same as workers on Overtime, however, Second Shift workers are more efficient and do not seek work elsewhere, therefore reducing turnover. 11. Management should strive to: A. increase employee turnover B. decrease employee turnover Lowering Turnover reduces Recruitment costs. 12. Increasing Capacity tends to: A. increase the Needed Complement B. reduce the number of workers on Second Shift C. reduce Overtime Increasing Capacity tends to reduce the number of workers on the Second Shift. As an example, a production order of 1,200 units on a line with a Capacity of 800 units (numbers in thousands) will require 400 units to be produced by the Second Shift. Increasing Capacity to a total of 1,000 units will result in 1,000 units manufactured by First Shift labor, and only 200 units produced by more expensive Second Shift labor. 13. Increasing Training Hours tends to: A. increase the Needed Complement B. decrease the Needed Complement C. neither increase nor decrease the Needed Complement D. both increase and decrease the Needed Complement In the short term, increasing Training Hours will increase the Needed Complement-- Workers are taken off the production line and put in the classroom. However, as time goes on, investing in Training Hours increases worker productivity, and therefore tends to decreases the Needed Complement. 14. Recruiting Costs are incurred when: A. Automation levels increase B. Production runs increase and teams match hiring to Needed Complement C. workers are assigned to a 2nd Shift Increasing production and then matching the Needed Complement will result in new hires, and therefore increase Recruiting Costs. 15. Assuming the Productivity Index is greater than 100%, adding Overtime will: A. increase the Productivity Index B. decrease the Productivity Index While the Productivity Index can never fall below 100%, it is possible for teams to increase the Index by investing in a higher quality of worker (Recruiting Spend) and in education (Training Hours). However, scheduling Overtime will decrease the Index because workers will become tired and disgruntled. 16. Worker training is entered/determined by the: A. Hour B. Dollar Hours are entered on the HR Screen. Training costs $20.00 per hour per worker. 17. Teams can eliminate all Recruiting Costs if they wish. A. True B. False Teams can choose to enter 0 in the Recruiting Spend cell on the Human Resources screen, however that number is in addition to a base Recruiting Cost of $1,000 per worker. A Recruiting Spend entry facilitates recruiting a better quality of worker. 18. Generally, Separation Costs will be incurred when: A. Production levels increase B. Automation Levels increase C. Production Levels decrease D. Production levels decrease and / or Automation levels increase The Needed Complement is determined by a combination of: a) the number of units ordered into production; and b) the Automation level of the assembly lines. Decreasing the number of units produced from one year to the next will decrease the Needed Complement. Similarly, increases in Automation will decrease the Needed Complement. If teams adjust the This Year cell to match the Needed Complement, Separation Costs will be incurred.