Guide

You run a manufacturer. Customers put jobs out for sealed bids, and you bid against two rivals. The lowest bid wins the job. Win a job below what it really costs you and you've bought a loss. That is the catch: win the bid, lose the money. The game teaches you to know what each job costs before you price it.

Starting a game, and the three levels

A game is 12 rounds. Every company has the same plant: 1,000 labor hours a round. Labor costs $30 an hour, paid only for hours worked. The plant's overhead is paid every round, busy or not.

Random seed decides everything: the jobs, the rivals' markups and every tie. Leave it blank for a fresh game, or enter a number to play the same game again. Click the level in the header to see the game's seed, for example to check it's the one your professor assigned. Start over, at the bottom of the board, ends the game without counting it and opens a new one with the same seed.

Level 1 · Contribution margin

One kind of job and one overhead pool: $40,000 of facility a round, $53 an hour. Half the rounds are thin. Bid below full cost when your plant would sit idle, and hold your price when it's full.

Level 2 · Activity-based costing

Simple runs and complex orders. Setups ($1,500), engineering changes ($5,000) and orders ($750) cost real money, and Rival A knows what every job costs. You can install activity-based costing for a one-time $20,000, not part of overhead; it prices your jobs 2 rounds after you order it.

Level 3 · Capacity and the death spiral

Your overhead rate follows your last 3 rounds' hours. A downturn of 3 to 5 thin rounds starts in round 4 to 6, and Rival A cuts to its job cost + 5% when orders are thin. To win you also need a profit.

You win when…

…you have the most profit of the three companies after round 12. At level 3 you also need a profit: first place with a loss is a loss. Profit is what customers paid you, less materials, labor, setups, engineering changes, orders, the facility and anything you spent on activity-based costing. Nothing is valued at the end, so there's nothing to game in the last round.

A round

1. Bid or pass on each job. Every bid is pre-filled at your full cost plus the markup (20% to start). Change the markup to rewrite every bid at once, type over any single bid, or tick Pass. Bids are in whole $100s. The pre-filled bid is your company's habit, not advice.
2. Install activity-based costing (levels 2 and 3, once a game): a one-time $20,000, paid that round and not part of overhead. It prices your jobs from 2 rounds later.
3. End round. The rivals' bids are already in. The round resolves at once.

Who gets a job. Jobs are awarded top to bottom. A bid counts if it's at or under the customer's ceiling. The lowest counting bid wins, if that company still has the hours; if not, the job goes to the next lowest. If no bid counts, the job lapses. A tie goes to the company with more spare hours, then to a draw. The winner is paid its bid and pays the job's real costs.

Thin and full rounds. The board tells you how much work is on offer against the three plants' 3,000 hours. Under 2,010 hours of regular jobs, orders are thin: some plants will sit idle.

Reading a job

Each job shows what it uses, grouped by the cost hierarchy. Per unit: labor hours and materials for each unit made. Per batch: setups (getting the line ready) and orders (shipping and paperwork), the same whatever the run's size. Per product: engineering changes, the design work a custom product needs. A simple run is many units with one setup. A complex order is a few units with several setups and changes.

Your cost shows in two numbers. Variable cost is what the job adds to your costs. Full cost adds the job's share of overhead. Hover over either to see the sum. A special order is a small one-off run whose customer shows the ceiling: it's always below full cost and above variable cost.

Traditional costing and activity-based costing

Where the hourly rates come from. Overhead is budgeted for a normal round. A plant can work 1,000 labor hours a round, and rates are set at normal volume, 75% of that: 750 hours. At levels 2 and 3 a round's overhead budget is:

Traditional costing spreads all of it by labor hours: $38,000 ÷ 750 h = $50.67, so $51 a labor hour, on every job alike. About $17 of every hour stands in for setups, changes and orders, whether the job uses them or not.

Activity-based costing (ABC) charges each job for what it uses: $1,500 a setup, $5,000 an engineering change, $750 an order. Only the facility goes by the hour: $25,000 ÷ 750 h = $33.33, so $33 a labor hour.

A job's hours are its units × labor hours a unit; both systems multiply them by their rate. Two jobs, priced both ways:

Traditional costing overstates the simple run by $4,950 and understates the complex order by $12,010. Bid both at traditional full cost + 20% and the simple run goes to a rival who knows it's cheaper, while you win the complex order at $23,300: below its job cost of $25,450. You win the bid and lose the money. At level 1 there's one overhead pool, so the two systems agree.

Why: the complex order's 180 h × $51 = $9,180 of traditional overhead includes about $3,120 (180 h × $17) for setups, changes and orders. It really uses $15,250: 3 setups, 2 changes and 1 order. The simple run's 400 h carry about $6,933 for them; it uses $2,250. At level 3, actual costing spreads the overhead over the hours you really worked instead of 750: see The death spiral.

Once ABC prices your jobs, the board keeps the traditional full cost beside it, in grey, so you can see which jobs labor hours get wrong, and by how much. Hover over any cost to see its sum.

Contribution margin: when a low price adds profit

The facility costs the same whether the plant works or not. So when orders are thin and your plant would sit idle, a price below full cost still adds profit, as long as it's above variable cost: the difference, the contribution margin, pays toward the facility you're paying anyway. A special order is the textbook case: take it when you have idle hours. When plants are full, hold your price: a cheap job only pushes out a full-price one.

Which variable cost? Under traditional costing it's materials and labor. But setups, changes and orders are paid when you do the job, so ABC's job cost is the true floor. Below it, every job you win loses money before it pays a cent of facility.

The death spiral

At level 3 your reported costs use actual costing: the overhead rate is the last 3 rounds' overhead over the hours you actually worked (never fewer than 200). Work fewer hours and the same facility is spread over fewer jobs, so every job looks dearer. Price on that and your bids rise, you win less work, your hours fall further, and the rate rises again. That's the death spiral.

The way out: price on normal volume (the board's Normal volume column). The idle plant's cost belongs to the period, not to the jobs you bid on. The board shows it each round. Through a downturn, take work that covers its job cost, and don't chase volume below it.

The rivals

Each rival prices its full cost plus a markup it chose for the game, within a few percent either way. You see each rival's cost system, not its markup: read it from last round's winning bids. Each has one habit.

• Rival B uses traditional costing at every level. In a thin round it cuts 20 points off its markup, never below materials and labor + 10%.
• Rival A uses traditional costing at level 1 and holds its price. From level 2 it uses ABC from round 1: at level 2 it cuts its markup in thin rounds as Rival B does; at level 3 it bids its job cost + 5% when orders are thin, and its own rate rises after a thin spell.

The debrief

After round 12 the debrief says who won and why, and puts every job you bid on side by side: your bid, the winning bid, its traditional cost and its ABC cost, and what it really made. It totals the jobs you won by kind: what traditional costing said they made, and what they really made. At level 1 it compares your thin rounds with bidding full cost on the same game; at level 3 it charts your hours and your overhead rate round by round. After a win it invites you up a level.

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