Short$-$Term Financial Mgmt$.$ Section $01$ Spring Semester $2024$Case $1$: Inventory Analysis for New Finance ManagerIt is January $2,2024.$ You have just been hired to be the finance manager at Crocs, Inc., working for Dylan, one of theproduct managers. Dylan is responsible for all aspects of the one version of Crocs. Its as if Dylan is the generalmanager of his own small business within the larger company, selling $85,000$ units per year. He needs your assistanceto determine inventory policy for $2024.$ As a starting point, he would like you to model out what inventory costswould be if you continued with the existing policy. He wants this first piece of analysis submitted no later than noonon Monday, January $29$ to give him time to incorporate your work into his overall changes to the business.The reason Dylan is confident that you can find some improvements is because he is also new to this product line andknows that the previous manager was running the business suboptimally. For example, the previous manager $($wellcall him J to save him from embarrassment$),$ has been paying invoices late, even though doing so incurs a $1\%$penalty for late payment!As you might expect working at Crocs, Dylans product line is a line of footwear. These shoes are produced in Chinafor $$10$ per pair of shoes and transported by container ship to a company warehouse in Los Angeles from which theyare delivered to retailers around the country. Each container can hold $6,000$ units $($i$.$e$.$ pairs of shoes$).$ The units arepacked in boxes of $12$ units per box. From reviewing the reports for the past year, you can see that J was reorderingwhen inventory reached $5,000$ units. Each order was for $2$ containers $(12,000$ pairs$),$ even though the lead time isusually just $14$ days. In fact, it has never taken more than $17$ days for a delivery to be available for distribution fromyour warehouses to the retailers. Dylan believes inventory is too high, after all, the industry average is just $20$ daysinventory held.The warehouse runs as a profit center. Each year on January $15,$ the warehouse manager asks you to estimate theamount of space you will need in the coming year and charges you for the space you require. He charges in units ofcontainers $($$$3,000/$container$,$ i$.$e$.$ $$3,000$ for storage of $6,000$ units$).$ Whenever a shipping container arrives, hiswarehouse workers have to put the boxes on pallets $(4$ boxes per pallet$).$ He charges your business unit $$4/$pallet forthis work.Additionally, the corporate office charges your business unit for capital employed. That means they charge yourbusiness unit for the capital invested in inventory. The charge is the corporate hurdle rate of $5\%$ times the averagevalue of the inventory over the previous calendar year. This payment is due January $15$th each year for the previousyear.Unfortunately, the previous finance manager $($whose job you have now taken$)$ had already taken a new position withanother company prior to your arrival at Crocs. She did leave you some notes indicating that she recognized therewere problems with inventory levels and had begun to work on finding a solution. She had started gathering data onorder costs. It takes the inventory manager less than $10$ minutes $(9$ minutes to be exact$)$ to place the order with thefactory in China. Shipping costs are $$3,500$ per container to get the shoes from China to the warehouse in LA$.$Shipping charges are paid at the time the order is placed. The cost of the units is due once they are received at yourwarehouse. The fully burdened rate for everyone in operations is about $$40/$hour$.$Inventory on $1/1/24$ was $10,600$ units.What Dylan needs you to do is build a spreadsheet to model inventory levels, orders and costs for $2024,$ including thecost of capital charge that will come $1/15/25$ under Js policies.Your first meeting with Dylan is Wednesday. To make a good impression on your new boss, you need to be ready for aproductive discussion. You will need to think hard about what questions you have. What else do you need to knowto build the model that Dylan needs?