During mid-October 2015, the top managers of the Gale Force Corporation, a leadin manufacturer of kitesurfin GALE FORCE CORPORATION room reviewing the results of the company's operations during the past riscal year (which runs from October 1 to September 30) g equipment, were gathered in the president's conference "Not a bad year, on the whole," remarked the president, 32-year-old Charles were up, profits were up, and our return on equity was a (Chuck) Jamison. "Sales respectable 15 percent. In fact," he continued, "the only dark spot I can find in our whole annual report is the profit-on-sales ratio, which is only 2.25 percent. Seems like we ought to be making more than that, don't you think, Tim?" He looked across the at the vice-president for finance, Timothy Baggitt, age 28 "I agree," replied Tim, "and I'm glad you brought it up, because I have a realized he had captured the interest of the others. "The problem is, we have too many expenses on our income statement that are eating up the profits. Now l've done some checking, and the expenses all suggestion on how to improve that situation." He leaned forward in his chair as he seem to be legitimate except for interest expense. We paid over $250,000 last year to the bank just to finance our short-term borrowing.If we could have kept that money instead, our profit-on-sales ratio would have been 4.01 percent, which is higher than that of any other firm in the industry." But, Tim, we have to borrow like that," responded Roy ("Pop") Thomas, age most all al 5, the vice-president for production. "After all, our sales are seasonal, with occurring between March and September. Since we don't have much money comin in from October to February, we have to borrow to keep the production line going. Right," Tim replied, "and it's the production line that's the problem. We produce the same number of products every month, no matter what we expect sales to be. This causes inventory to build up when sales are slow and to deplete when sales pick up. That fluctuating inventory causes all sorts of problems, not the least of which is the excessive amount of borrowing we have to do to finance the inventory accumulation. (See Tables 1 through 5 for details of Gale Force's current operations based on equal monthly production.) Now, here's my idea," said Tim. "Instead of producing 400 items a month, every month, we match the production schedule with the sales forecast. For example,if expect to sell 150 windsurfers in October, then we only make 150. That way we avoid yway. Over the course Hold on, now," Pop responded, feeling that his territory was being threatened. borrowing to make the 250 more that we don't expect to sell, an of an entire year, the savings in interest expense could really add up "That kind of scheduling really fouls up things in the shop where it counts. It causes a fe ast or famine environment-nothing to do for one month, then a deluge the nex It's terrible for the employees, not to mention the supervisors who are trying to run an ficient operation. Your idea may make the income statements look good for now, but the whole company will suffer in the long run." Chuck intervened. "OK, you guys, calm down. Tim may have a good idea or he may not, but at least it's worth looking into. I propose that you all work up two sets of figures ing Capital Management