The industry of medical devices involves a number of monitoring and reconstructive devices. Some of those devices include cardiac and diabetic care as well as hip and knee replacements. The owners of a medical device manufacturing firm called “JointsOrtho” have recently reviewed information about the expected growth of the aging population in the United States. Every day 10,000 Americans are turning age 65 every the population of older adults is expected to reach 89 million people by the year 2050. This figure is more than double the number of older adults in the United States in 2010. Orthopedic medical devices are one of the fastest growing areas in medical device manufacturing.
The owners of JointsOrtho or JO, manufacture full hip and knee replacements and would like to have your firm set up a financial plan for opening a new manufacturing plant that makes medical devices often used for Orthopedics. Specifically you will set up a plant that manufactures Full Hip Replacements in Delaware.
Each Full Hip Replacement will be sold throughout the United States at a cost of $36,750 each, including shipping, etc. Sales are expected to be between 1,000 and 1,200 hips per month. This figure is above what they are already producing in their first plant. Depreciation for equipment should be set to 10 years.
You will need to provide information to the owners of JointsOrtho that includes what it will cost to open a facility and hire workers and determine if the facility will breakeven within the first 12 months.
You will be hiring a total of 3 shift supervisors and a total of 45 employees (including shift supervisors) to do various manufacturing of the hips, clean up, shipping, etc.
The 45 workers will be paid as follows:
15 of the workers will be paid at the rate of $18/hour for 40 hours per week (molding specialists)
10 of the workers will be paid at the rate of $16/hour for 40 hours per week (machining specialists)
5 of the workers will be paid at the rate of $13/hour for 40 hours per week (cleaning and maintenance)
10 of the workers will be paid at the rate of $17/hour for 40 hours per week (shipping and receiving)
3 shift supervisors will be paid at the rate of $20/hour for 40 hours per week
1 plant manager will be paid a salary of $6,000 per month
1 administrative/human resources person at the rate of $15/hour for 40 hours per week
Transaction 1: Borrow $6,000,000.00 for building with 10 year mortgage at 10% annum
Transaction 2: Pay your salary of $6,000/month
Transaction 3: Pay for building: Set up what will be office space, manufacturing space and warehouse space. Set a depreciation schedule
Transaction 4: Hire managers & Workers. Pay salaries and fringe benefits and taxes
Transaction 5: Pay employee health, life and disability premiums, plus FICA, un-employment and withholding taxes
Transaction 6: Order $3,000,000 worth of machinery/equipment for manufacturing. Pay ½ down.
Transaction 7: Receive machines and pay remaining amount due
Transaction 8: Hire employees- Expense 1st Months’ salary/wages, set up machinery depreciation, set-up standing costs
Transaction 9: Place order for raw materials at a cost of $1,000,000 which will include Machining, Casting, Grinding, Polishing and metal injection molding materials. *Note: These raw materials will need to be ordered every 3 months.
Transaction 10: Receive 3 month supply of raw materials
Transaction 11: Start up production. Pay workers for the month
Transaction 12: Book depreciation and other manufacturing overhead costs for the month
Transaction 13: Finish manufacturing 2,000 hips and move them into finished goods inventory
Transaction 14: Pay for the 3 month supply of raw materials received in Transaction 10
Transaction15: Manufacture and months’ supply of hip replacements
Transaction 16: Take an order for 1,200 hip replacements Transaction 17: Ship and invoice customer for 1,200 hip replacements
Transaction 18: Receive payment for 1,200 hip replacements Based on the above information:
Perform a Cash Flow Analysis.