Guna Fibres, Ltd is a textile manufacturing company founded in 1972 and situated at Guna, India. Ms Surabhi Kumar is the managing director and principal owner while Mr Malik is the bookkeeper. This company utilizes the technology and domestic raw materials to expand its franchises. It supplies fibre yarns used to weave colourful cloth for saris, a traditional wear of Indian women. Guna Fibres usually utilized a line of credit from All India Bank & Trust to finance its business during its peak sale season which is usually on summer.
The main problem of the company is that it couldn’t liquidate a seasonal working capital loan for the requisite 30 days each year. It reflects the company doesn’t have sufficient cash and they need more loan but the bank is reluctant to give any unless the company can give a reliable financial plan to show they can pay off their loan by the end of 2012. So, Mr Malik came up with a financial forecast for the month to month operation to gain the bank’s trust. Sadly, the forecast portrays it cannot afford to pay off its debt by end of 2012 and would owe a balance of IND 3,858.00. This…show more content… Gupta's recommendation to use level annual production. Gupta believes that level production has two main advantages. First, under level production, Guna does not need seasonal hiring and layoff, thereby maintaining a more stable workforce. Secondly, level production can reduce the manufacturing risk, to decrease the profitability of equipment breakdown in peak season, due to a large amount of production request. The cost of equipment breakdown will be huge since Guna's production will be out of stock in the peak season. Based on Gupta's estimation, using level production will reduce the company's direct labor and other direct manufacturing cost from 34% to 29% of its purchases. The impact of Gupta's proposal is illustrated in Exhibit 8, Guna's note payables shows that company cannot clean up its