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In: Business and Management

Submitted By vdfds123
Words 490
Pages 2
1. What factors could Mr. McClintock consider in deciding whether or not to adopt the level production plan? i. Savings from overtime wages ii. Reduction in the production cost970% to 65.1%) iii. Even production plant throughout the year which will remove the glitches in scheduling iv. Cost incurred in storage and handling v. Reduction in recruitment cost vi. Additional labor savings since seasonal expansion and contraction of employees are removed in level production vii. Reduced Training and Quality control costs viii. More working capital in order to accommodate longer cash cycle and for maintaining inventory

2. What savings would be involved?
Savings from reduced overtime premium= $225,000
Savings from additional labors =$265,000
Additional cost incurred in storage and Handling = $(115,000)

3. Prepare a financial forecast to estimate the company’s funding needs with level production Prepare pro forma income statements and balance sheets (rather than a cash budget) to make this estimate. For simplicity assume that interest income and expense do not change with the switch to level production.
Refer the excel

4. Compare the liabilities patterns feasible under the alternative production plans. What implications do their differences have for the risk assumed by the various parties? a. Under the level production, since the inventory has to be store during initial seven months to accommodate the seasonal variation, more capital is need to compensate for inventory and holding costs b. But the net profit from level production is higher when compared to the seasonal production c. Since more raw materials are needed during initial period, and due to the lack of corresponding sales, liability to suppliers are increased

5. What effect will…...

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