Polar Sports Essay

332 Words2 Pages
Executive Summary Polar Sports is considering different options to reduce production costs in an industry that is significantly affected by seasonal demand. We have evaluated two options, seasonal and level production for Polar Sports. In order to maximize net income, we recommend that Polar Sports should change the production method from seasonal production to level production. Polar Sports exists within the winter apparel market and competes based on style, quality and pricing options. Recently, competitors have moved facilities overseas in an effort to reduce labor costs. Due to seasonality, high demand and production of its apparel lines occur for 6 months out of the year from August through January. Significant swings in production activity have a negative impact on the useful lives of the machinery and are evidenced by high maintenance costs throughout the year. Analysis In order to evaluate the costs and net income associated with seasonal versus level production, pro forma financial statements were created for the income statement, balance sheet, and statement of cash flows Exhibit 2, 3 and 4. Assumptions shown in Exhibit 1(b) for 2012 projections were used to evaluate changes in Accounts Payable purchases, inventory levels, and associated expenses of each option. In addition, loan needs were evaluated as compared to the loan amount available from the bank including restrictions based on Accounts Receivable and Inventory levels and tiered interest rate costs. From the income statement the revenues for Polar Sports have shown an upward trend from 2009 to 2011 Exhibit 1(a). If the company maintains seasonal production, it can expect an approximate net income of $1.147M which is an increase of 28% from 2011. Although the company will be profitable, the company will not benefit from reducing costs of production, operations, or

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