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Wisconsin Snowmobile Corp

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Wisconsin Snowmobile Corp. is considering a switch to level production. Cost efficiencies would occur under level production, and aftertax costs would decline by $40,300, but inventory would increase by $310,000. Wisconsin Snowmobile would have to finance the extra inventory at a cost of 14.5 percent.

a-1. Determine the extra cost or savings of switching over to level production.

a-2. 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?