Palm-West Products (C)
Group Exercise
1. Background.
Valerie Preston formed Palm-West Products, Inc. in 2013
when she obtained an exclusive franchise to nationally distribute
designer windows. Recent high sales growth of the base window
(WIND-B), along with expected sales growth for a new enhanced
window (WIND-P), requires adding management team members.
Ms. Preston is keenly aware of other growth-oriented companies
within the designer window sector that have run out of cash and
gone into bankruptcy. Seeing potentially viable businesses fail
particularly concerns Ms. Preston and, consequently, she wants to
ensure that sufficient cash will be available to accommodate
PWP's expected growth. She would like to present a financial
plan to PWP's board of directors and needs a financial model that
can be used to address questions from top management and
members of the board of directors. She would also like to provide
the board with a graphical cost-volume-profit analysis.
1.1 Company information.
Since Palm-West Products does not want to forfeit market
share to competitors, it maintains a policy to never stock out of its
windows. Therefore, the company maintains desired ending
inventories equal to 75% of the next month's unit sales. In June,
PWP began carrying a premium model WIND-P, which had the
following estimated sales (see Exhibit 1).
Unit Sales
Total
PREMIUM
July
Forecasted Sales Volume
August
September October
2,244
2,850
3,683 3,960
Exhibit 1. PWF's sales forecast and other sales information
1.2 Group Exercise.
Prepare a Production Budget for July and August.
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