Wisconsin Snowmobile Corp. is considering a switch to level production. Cost eff

Question

Wisconsin Snowmobile Corp. is considering a switch to level production. Cost efficiencies would occur under level production, and aftertax costs would decline by $36,900, but inventory costs would increase by $410,000. Wisconsin Snowmobile would have to finance the extra inventory at a cost of 10.5 percent.

Determine the extra cost or savings of switch over to level production. (Input the amount as positive value. Omit the "$" sign in your response.)

How low would interest rates need to fall before level production would be feasible? (Omit the "%" sign in your response.)

Determine the extra cost or savings of switch over to level production. (Input the amount as positive value. Omit the "$" sign in your response.)

Explanation / Answer

Interest for financing the inventory=$410000*10.5%

=$43050

Cash savings=36900

HEnce additional cost shall be=$6150

b) the company should not approve the level production

c) the interest rate shall fall to a level such that it is lower or equal to the cash savings hence

36900=410000*r

Or r=9% or less

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