Dimaggio Sports Equipment, Inc. is considering a switch to level production. Cost efficiencies would occur under level production, and after-tax costs would decline by $35,000, but inventory would increase by $400,000. Dimaggio would have to finance the extra inventory at a cost of 10.5 percent.
a. Should the company go ahead and switch to level production?
b. How low would interest rates need to fall before level production would be feasible?
Click here for the SOLUTION