All raw materials are currently purchased from outside suppliers and
no difficulty is foreseen in obtaining the necessary inventories for
production in the future. All inventories are currently considered to be
at the lowest safe levels possible given the delivery, production, and
sales cycles.
Given the current production capacity, the company will have room for
expansion for the next few years without building new facilities or
expanding the current building. The company will also have the option
of starting a second production shift to support future sales if
necessary; therefore, increased production will be obtainable through
purchasing additional equipment or increasing production hours. At
this time, however, the president is not considering a second shift due
the additional $1.00 per hour shift differential that would be necessary
to pay the hourly second shift workers.
The company had a cash flow problem in 2005 but has always
managed to make all payments on a timely basis. The president wishes
to increase the amount of cash on hand in the future so that the
company will have a greater margin of safety. To date, the company
has not had difficulty obtaining financing for expansion and does not
foresee any future difficulties in obtaining necessary funding for
legitimate purposes.
The company has paid a consistently good dividend to the
stockholders. The president would like to continue this policy in the
future.
DEPARTMENT STRUCTURE
Fantastic, Inc. has two separate production departments - one for each
of the paint types. Since the end products are not distinguishable, the
company uses process costing employing a FIFO inventory.