Polar Sports, Inc.
In early January 2012, Richard Weir, president of Polar Sports, Inc., sat down with Thomas Johnson, vice president of operations, to discuss Johnson’s proposal that Polar institute level monthly production for 2012. Since joining the company less than a year earlier, Johnson had become concerned about the many problems arising from its highly seasonal production scheduling, which reflected the seasonality of sales of skiwear and accessories. Weir understood the cost savings and improved production efficiency that could result from level production, but he was uncertain what the impact on other aspects of the business would be. Polar Sports, a fashion skiwear…show more content… Polar’s net income reached $897,000 in 2011 and was projected to be $1,147,000 in 2012 under seasonal production. Tables A and B show the latest financial statements. The cost of goods sold had averaged 66% of sales in the past and was expected to remain at approximately that level in 2012 under seasonal production. Operating expenses, projected to be 24% of sales, would be incurred evenly throughout each month of 2012 under either seasonal or level production. Polar was facing a corporate tax rate of 34%.
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BRIEFCASES | HARVARD BUSINESS SCHOOL
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Polar Sports, Inc. | 913-513
Table A
Consolidated Income Statement, 2009–2011 (in thousands of dollars)
2009 2010 15,065 10,244 4,821 3,615 125 19 1,099 374 725 2011 16,360 10,798 5,562 4,090 128 15 1,359 462 897
Net sales COGS Gross profit Operating expense Interest expense Interest income Pretax profit Income tax Net income
14,079 9,011 5,068 3,520 105 17 1,461 497 964
Table B
Balance Sheet at December 31, 2011 (in thousands of dollars)
500 5,245 1,227 6,972 2,988 9,960 966 826 139 100 2,031 1,000 3,031 6,929 9,960
Cash Accounts receivable Inventory Current assets PP&E Total assets Accounts payable Notes payable, bank Accrued taxes Long-term debt, current portion Current liabilities Long-term debt Total liabilities Shareholders’ equity Total liabilities and shareholders’
