Motor Manufacturing Business Simulation – Essay Example

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So, with the reduction in sales of the company, the cost per unit of the cars would increase as the fixed cost will be distributed to lower number of cars. The gross profit margin is the ratio that is calculated after subtracting the cost of sales from the total sales (Friedlob & Plewa, 1996). Gross profit margin reduced as the sales increased in the third year, however as the sales reduced in the years to come, the gross profit margin reduced as well. The gross profit margin reached as low as 13.87% in the fifth year indicating that the revenues or the sale price of the products have been changed as the profits from each of the product sold has been reduced.

The following table shows the prices of both the models over the period of five years: The following table reflects the revenues and costs of the Spartan Cars as estimated by the management: The operating expenses of the company also varied in the passage of five years. The fixed overheads of the company initially increased in the first three years as the sales of the company increased.

The increase in the fixed overheads influenced the operating profit of the company. The operating profit increased but it decreased after the third year. In the fifth year of its operations, the project incurred an operating loss of 327.37 million. A similar pattern has been shown by the operating profit margin which is defined as the ratio of operating profit to total revenues (Kaplan, & Atkinson, 1998). As the operating profit margin has been high in the first three years, however as the sales started decreasing, this negatively affected the operating profit margin as well.

The operating profit margin reduced from 16.22% to 5.86% from third year to fourth. Moreover, the operating profit margin further slipped in the fifth year as the company incurred a loss and, thus, the operating profit margin reached to -9.09%. The market share of both the models; model 1 and model 2 have been increasing since the time the products have been introduced in the market. However after the third year, the market share of both the models started slipping and, thus, the management had to come up with something to maintain the market share.

The following graph shows the market share of both the models of the company in five years and it can be seen that the market share started reducing but then the steps taken by the management helped in increasing the market share in the fifth year. As the market share started slipping, the management was proactive to identify it and take actions.

REFERENCES

Arnold, R. (2008). Economics. Mason, South-Western Cengage Learning.

Friedlob, G., & Plewa, J. (1996). Understanding Balance Sheets. New York: John Wiley & Sons.

Gitman, L. (2003). Principles of Managerial Finance. Boston: Addison-Wesley Publishing.

Kaplan, R., and Atkinson, A. (1998). Advanced Management Accounting. New Jersey: Prentice-Hall.

Khan, M. (1993). Theory & Problems in Financial Management. Boston: McGraw Hill Higher Education.

Kotler, P. (2009). Marketing Management. Pearson: Prentice-Hall.

Quick MBA. The Product Life Cycle. Available at http://www.quickmba.com/marketing/product/lifecycle/ [Accessed 22nd July, 2012]

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