Sales Forecast (each unit sells for $6,500)   

Month    Sales in Units    Sales in $   

October           250        $ 1,625,000.00 

April                 650        $ 4,225,000.00 

November       80           $ 520,000.00 

May                1,100        $ 7,150,000.00 

December       15          $ 97,500.00 

June              1,200        $ 7,800,000.00 

January 0 $ - July 1,100 $ 7,150,000.00 

February 5 $ 32,500.00 August 500 $ 3,250,000.00

 March 400 $ 2,600,000.00 September 250 $ 1,625,000.00

Question 1 – level production

a. Generate a monthly production and inventory schedule in units assuming level production of 500 units per month. Beginning inventory in October is 200 units. Each scooter costs $2,500 per unit to produce. Use the sales forecast projected in Table 1 for breakdown of units sold per month.

b. Prepare a monthly schedule of cash receipts. Of each month’s sales, 15% are cash and 85% are on credit (accounts receivables). All accounts receivables are collected in the month after the sale is made. Total sales for the prior September were $1,500,000.

c. Generate a cash payment schedule for October through September. The production cost of $2,500 per scooter are paid for in the month in which they occur (i.e., if they produce 250 scooters, they pay $2,500 x 250 = $625,000 in production cost for that month). Other cash payments, besides those for production costs, are $225,000 per month.

d. Prepare a monthly cash budget for October through September. The beginning cash balance is $125,000, and that is also the minimum cash balance desired each month. The cumulative loan balance to start the year in October is zero ($0).

Question 2 – seasonal production

a. Generate a monthly production and inventory schedule in units assuming seasonal production as per Leonard’s suggestion. In this case, the monthly production will equal the sales in units. Beginning inventory in October is still 200 units. Each scooter costs $2,500 per unit to produce. Use the sales forecast projected in Table 1 for breakdown of units sold per month.

b. At this point, we must consider inefficiencies that have been introduced because of going from level to seasonal production. Assume that there are added expenses related to switching to seasonal production and the other cash payments (other than production costs) are $350,000 per month instead of $225,000. Prepare the amended cash payment schedule (like in c above) AND cash budget for October to September (like in d above). The cumulative loan balance to start the year in October is zero ($0).

Question 3 Given that Bazinga Inc. is charged 12% annual interest (1% per month) on its cumulative loan balance each month, how much would Leonard’s suggestion save in interest expense in a year? To determine this, multiply the cumulative loan total for the month by 1% (if the cumulative total for the month is zero, then there is zero interest to be paid for the month). Add these totals for each month to get the total amount of interest charged to Bazinga Inc. Complete this exercise for both the level production and seasonal production.

Question 4 If you were in Sheldon’s position, would you continue to use level production, or, switch to seasonal production? Use all the information available in this case, as well as everything you know making decisions as a financial manager. Make sure you explain your reasoning behind the decision.

Answer rating: 100% (QA)

Lets break down each question one by one Question 1 Level Production a To generate a monthly product... View the full answer