Questions 1-3 are required.

To keep from losing sales, the company maintains finished goods inventory on hand at the end of each month equal to 300 trailers plus 20% of the next month's sales. The finished goods inventory on December 31, 2010, was budgeted to be 1,000 trailers, Jim West, Let's Go's vice president of marketing and sales, would rather see a minimum finished goods inventory of no less than 1,500 trailers, Jim refuses to talk to Tom Sloan, Let's Go's production manager. Tom is always trying to get Jim to consider adopting flexible inventory levels, which Jim is certain would affect his yearly bonus. The vice president of sales and marketing is eligible for a 20% bonus based on sales. Unfortunately, Jim did not receive a bonus in 2010. Sales were up, but Mark refused to give Jim the bonus, although it was carned, due to the high number of customer complaints. Jim was really steamed when he heard "no bonus." Didn't Mark know those complaints were for poor quality? All of Jim's efforts to grow sales and attract customers were, once again, destroyed by Tom Sloan and his production failures. contract, and her efforts to locate an alternative vendor, willing to accept the conditions of a just in-time contract, have similarly failed. She blames Tom Sloan. Let's Go's current aluminum vendor refuses to sign a just-in-time prime vendor contract due to Tom's uneven production schedule and his refusal to pay on time. Tom has been seen reading the help wanted ads, and Vicky over heard him talking to an employment agency. In keeping with the policy set by Tom as Let's Go's production manager, the amount of sheet aluminum on hand at the end of each month must be equal to one-half of the following month's production needs for sheet aluminum. The raw materials inventory on December 31, 2010, was budgeted to be 39,000 square yards. The company does not keep track of work-in-process inventories. Budgeted expenses for Aluminum and other materials, as well as wages, heat, light and power, equipment rental, equipment purchases, depreciation, and selling and administrative for the first six months of 2011 are given below. TRAILER PRODUCTION January $816,000 Aluminum Other materials Wages Heat, light, & power Equipment rental Equipment purchases Depreciation Selling & admin 54,000 624,000 130,000 390,000 300,000 February $1,056,000 264,000 1,008,000 195,000 390,000 300,000 250,000 400,000 March $888,000 222,000 1,104,000 220,000 390,000 300,000 250,000 400,000 250,000 400,000 April June $552,000 138,000 Sheet aluminum represents the company's single most expensive raw material. Each travel trailer requires 30 square yards of sheet aluminum. The wholesale cost of sheet aluminum varies dramatically according to the time of year. The cost per square yard can vary from $15 in the spring, when new construction tends to start, to $8 in December and January, when demand is lowest. The use of aluminum in vehicles, including travel trailers, is increasing rapidly due to a heightened need for fuel efficient, environmentally friendly vehicles. Aluminum can provide a weight savings of up to 55% compared to an equivalent steel structure, improving gas mileage significantly. The aluminum industry and suppliers are dispersed across four-fifths of the country, yet they are largely concentrated in four regions: the Pacific Northwest, industrial Midwest, northeastern seaboard, and mid-South. Although this is a broad geographic presence, Let's Go Aero will be affected by distribution costs. Vicky Draper, Let's Go's vice president of purchasing and materials handling, is eager to implement just-in-time as a way of lowering Let's Go's aluminum cost. To offset the expense of distribution, Let's Go is located in Pennsylvania. Vicky's projected 20% bonus, recently announced by Mark and effective for year-end 2011, is based on her ability to lower total material cost. Initially enthusiastic about her job and ability to earn a significant bonus, Vicky has become discouraged and angry. She is unable to convince Let's Go's current aluminum supplier to sign a prime vendor 672,000 135,000 Aluminum Other materials Wages Heat, light, & power Equipment rental Equipment purchases Depreciation Selling & admin May $336,000 84,000 432,000 110,000 340,000 300,000 275,000 400,000 $240,000 90,000 240.000 110,000 340,000 300,000 275,000 400,000 340,000 300,000 275,000 400,000 Accounts for aluminum and other materials are paid in full during the month following their purchase. Accounts payable for aluminum and other materials purchased during December, 2010 totaled $850,000 combined. This amount will be paid in January, 2011. IMA EDUCATIONAL CASE JOURNAL VOL. 4, NO. 1, ART. 3, MARCH 2011 To keep from losing sales, the company maintains finished goods inventory on hand at the end of each month equal to 300 trailers plus 20% of the next month's sales. The finished goods inventory on December 31, 2010, was budgeted to be 1,000 trailers, Jim West, Let's Go's vice president of marketing and sales, would rather see a minimum finished goods inventory of no less than 1,500 trailers, Jim refuses to talk to Tom Sloan, Let's Go's production manager. Tom is always trying to get Jim to consider adopting flexible inventory levels, which Jim is certain would affect his yearly bonus. The vice president of sales and marketing is eligible for a 20% bonus based on sales. Unfortunately, Jim did not receive a bonus in 2010. Sales were up, but Mark refused to give Jim the bonus, although it was carned, due to the high number of customer complaints. Jim was really steamed when he heard "no bonus." Didn't Mark know those complaints were for poor quality? All of Jim's efforts to grow sales and attract customers were, once again, destroyed by Tom Sloan and his production failures. contract, and her efforts to locate an alternative vendor, willing to accept the conditions of a just in-time contract, have similarly failed. She blames Tom Sloan. Let's Go's current aluminum vendor refuses to sign a just-in-time prime vendor contract due to Tom's uneven production schedule and his refusal to pay on time. Tom has been seen reading the help wanted ads, and Vicky over heard him talking to an employment agency. In keeping with the policy set by Tom as Let's Go's production manager, the amount of sheet aluminum on hand at the end of each month must be equal to one-half of the following month's production needs for sheet aluminum. The raw materials inventory on December 31, 2010, was budgeted to be 39,000 square yards. The company does not keep track of work-in-process inventories. Budgeted expenses for Aluminum and other materials, as well as wages, heat, light and power, equipment rental, equipment purchases, depreciation, and selling and administrative for the first six months of 2011 are given below. TRAILER PRODUCTION January $816,000 Aluminum Other materials Wages Heat, light, & power Equipment rental Equipment purchases Depreciation Selling & admin 54,000 624,000 130,000 390,000 300,000 February $1,056,000 264,000 1,008,000 195,000 390,000 300,000 250,000 400,000 March $888,000 222,000 1,104,000 220,000 390,000 300,000 250,000 400,000 250,000 400,000 April June $552,000 138,000 Sheet aluminum represents the company's single most expensive raw material. Each travel trailer requires 30 square yards of sheet aluminum. The wholesale cost of sheet aluminum varies dramatically according to the time of year. The cost per square yard can vary from $15 in the spring, when new construction tends to start, to $8 in December and January, when demand is lowest. The use of aluminum in vehicles, including travel trailers, is increasing rapidly due to a heightened need for fuel efficient, environmentally friendly vehicles. Aluminum can provide a weight savings of up to 55% compared to an equivalent steel structure, improving gas mileage significantly. The aluminum industry and suppliers are dispersed across four-fifths of the country, yet they are largely concentrated in four regions: the Pacific Northwest, industrial Midwest, northeastern seaboard, and mid-South. Although this is a broad geographic presence, Let's Go Aero will be affected by distribution costs. Vicky Draper, Let's Go's vice president of purchasing and materials handling, is eager to implement just-in-time as a way of lowering Let's Go's aluminum cost. To offset the expense of distribution, Let's Go is located in Pennsylvania. Vicky's projected 20% bonus, recently announced by Mark and effective for year-end 2011, is based on her ability to lower total material cost. Initially enthusiastic about her job and ability to earn a significant bonus, Vicky has become discouraged and angry. She is unable to convince Let's Go's current aluminum supplier to sign a prime vendor 672,000 135,000 Aluminum Other materials Wages Heat, light, & power Equipment rental Equipment purchases Depreciation Selling & admin May $336,000 84,000 432,000 110,000 340,000 300,000 275,000 400,000 $240,000 90,000 240.000 110,000 340,000 300,000 275,000 400,000 340,000 300,000 275,000 400,000 Accounts for aluminum and other materials are paid in full during the month following their purchase. Accounts payable for aluminum and other materials purchased during December, 2010 totaled $850,000 combined. This amount will be paid in January, 2011. IMA EDUCATIONAL CASE JOURNAL VOL. 4, NO. 1, ART. 3, MARCH 2011