Dr.

Ujjwal Mishra
Prof. A. C. Panda
Polar Sports, Inc
1. Overview/Facts
Polar sports, Inc. is into fashion skiwear
manufacturing business, which is seasonal and
very short product life.
As the products are seasonal the company
follows seasonal production scheduling method.
Now the company wants to shifts to level
production method, which will reduce the cost but
uncertain about the impact on other aspects of
the busies (i.e. Risk, Liquidity & Financing)
2. Industry Overview
The Ski apparel business is a seasonal business,
it is highly competitive and very low product life.
North Face, Burton, Karbon, Spyder Active
Sports, Sports obermeyer, Parda and Giorgio are
the major player in the apparel market
As the Market is highly competitive, some players
have shifted their production to Asia and Latin
America.
Due to High competition in both designing and
pricing, there is a high rate of company failure
3. Problem Statement
Should the management consider to shift level
production method from seasonal scheduling
production Method
4.Objective
Understanding and interpretation of financial
statements (Income statement, Balance sheet &
Cash flow statement)
To analyze the profitability and liquidity aspects of
the firm.
To estimate the funds required for a change in
production method.

5. Alternative
To consider for Level production Method
To follow the Existing, Seasonal Production
scheduling Method
To consider both the methods
Criteria

Risk of profitability and Liquidity
Source of Sort term financing and risk

Analysis (as per original case
exhibits)

Seasonal Production Level Production
Pros:
a) Requires minimum short term
financing
b) Less risk
c) Less inventory holding
Pros:
a) Reduces operating cost
Cons:
a) Increases operating Cost
Cons:
a) Requires more short term financing
b) High risk
c) High Inventory Holding.
Analysis
Net Savings From Level Production

Overtime wage premiums 480,000
Other direct labor savings 600,000
Net savings before financial charges, carrying costs,
inventory losses, and taxes 1,080,000
Increase in interest expenses 147,923
Reduction in interest income 16,140
Increase in storage cost 300,000
Net pretax savings 615,937
Less tax at 34% 209,418
Net savings 406,518
7. Suggestion
From the above analysis, it shows that the
company can save around $ 406,518 if the
company follows Level production method, instead of
Seasonal Production Method.
Hence the company should follow the level production
Method

Key Take away
Analysis of Financial statements
Divergence in Accounting Income and cash flow
Questions for Discussion

What factors must be considered by Mr. Weir for
deciding, whether to adopt Level production?

Solution:
1. Net saving from level production $406518 /-
2. The difference in profit between two production Plans $
1553141 /- under Level Production & 1146623 under
Seasonal Production.
3. Level production reduces COGS from 66 % to 60 %


Find out the total savings, if Level production is
adopted

Solution:
Total Savings From Level Production
1. Overtime wage premiums 480,000
2. Other direct labor savings 600,000
3. Total savings before financial charges, carrying
costs, inventory losses, and taxes 1,080,000

Does increased net income justifies the potential
risk that may arise due to increase in risk
Solution:
Yes, The net Income Justifies the Potential risk,
which is arising from the peak Inventory level of $
6,483,000 in the month of August.
Financing Risk: Bank
Can the company able to finance its production
activity
Solution:
1. Yes Mr. Weir has to convince the Bank regarding companies
financial strength, as it absorbs substantial inventory losses
and still repay the bank in Jan next year.
2. Substitute of Bank credit is Polar could ask its trade suppliers
for terms longer than 30 days, i.e. 90 days credit term
Purchases which will help the company to generate around
90000