Question & Answer: What is the impact of sales growth on Revolutionary Designs' borrowing needs?…..

Part A Revolutionary Designs, Inc. Company Information Revolutionary Designs, Inc. manufactures and markets reproductions of early American furniture. furniture (chairs, tables is located Two of the company’s major product lines are oak and maple dining-room and sideboards) and walnut bedroom furniture (headboards and dressers). The company in a small community and has been in business for over 20 years Jack and Susan Newsome started the company to produce furniture sold in discount stores and warchouse furniture chains. Then called Newsome Furniture, the company primarily made dining room and bedroom furniture from oak and pine. Approximately seven years ago, the company started manufacturing Revolutionary period Revolutionary period reproduction furniture It begins to ship furniture in March, but most shipments are made between May and October, when reproduction furniture for a specialty outlet retailer. The line was an immediate success, and the company changed its name and product strategy. It is now one of the largest U.S. producers of The company’s major production period begins in January or February and lasts until the early fal. retail furniture stores have their peak season Recently your boss met the Newsomes at an antique auction. After learning about their financial needs, he contacted you and suggested that you visit them at their plant and office as soon a possible. He tells you that Revolutionary Designs has been a customer of First Bank, a competitor, for about three years. He also tells you that the Newsomes may currently borrow up to a limit of $1.2 million on a line of credit secured by inventory and receivables, and that they are looking fora lending institution that will offer them a higher limit with better term Assume that you are visiting with Susan and Jack at their plant and offices Our Revolutionary reproductions business continues to grow. We simply don’t have the capacity to make and deliver enough furniture to meet demand during the peak Susan: selling months. Last year we did slightly over $8 million, an increase of about $500,000 from the prior year. We held our prices last year, and in 20Y2, but sales grew because we added several new retailers to our customer list. This year, we are raising our prices about 10 percent, and we still are experiencing an increase in unit sales. We are now realizing the benefits of our expensive sales promotion in 20Y3 as well as the improving economy. When home sales go up, we know our sales will also In 20Y2, we began to move beyond the major metropolitan area furniture stores, and we now sell to retailers just about anywhere in the country. This has helped us to continue our growth; and we plan to continue opening new retailers in new markets. We ship our furniture promptly, on any of several trucking companies, and we give Jack: all of our customers excellent service, no matter what their size and location That’s right. In fact, our delivery charge is never over $200, regardless of the dollar amount of the sale, the size of the order, or the customer’s location. That’s a real Susan: selling point with our low-volume customers across the country