Subject: Financial needs Polar
For Polar Sports, Inc. one potential big change could be the switch from seasonal production to level monthly, as is brought up by Mr. Johnson, vice president of operations. This will lead to several differences in forecasting compared with when the company still adopts seasonal production. The forecast will through light on the financial needs of the company. First of all, production will be distributed evenly throughout the year under level production. This implies material purchases should also be constant. In 2012, Polar Sport foresees total material purchases of $5,940,000. Based on that, we know the company is going to need to purchase material worthy of $495,000 monthly. Since the company has 30-day payment term, this 495,000 goes into account payable for one month. Second of all, end inventory is calculated as End Inventory=Beginning Inventory+(Units Produced-Units Sold)* Cost per Unit. Under level production, unit produced is constant each month. Third of all, it is believed that altogether $1,080,000 will be saved if Polar Sport adopts level production. This figure can be trace by comparing the Cost of Goods Sold under seasonal production ($11,880,000) and Cost of Goods Sold under level ($10,800,000) Last but not least, if Polar Sort adopts level production, there would an increase in storage and handling cost. This amount is to be deduct from net income in pro forma income statement Besides the points mentioned above, there is also other information that needs to be considered during forecasting. It is not related to the switch from seasonal production to level production, but it has impacts on pro-forma incomes, balance and cash flow statement. Below is what was taken into consideration during the forecasting. 1. Operating expenses is projected to 24% of sales. This has noting to do with the two possible producing styles. 2. Tax rate is 34%
3. 7o% of the sales was generated by Polar’s...