Toy World Case

1. Market & Competitive Scenario

➢ A highly competitive business.

➢ The toy industry was populated by a large number of companies.

➢ No barriers to entry for new competitors.

Operative Characteristics of Toy World

➢ Highly Seasonal sales.

➢ Simple production process.

➢ Purchases on net 30- day terms were made weekly.

➢ Policy to retire trade debt promptly as it came due.

➢ Current practice f producing in response to customers’ orders.

➢ 60- day collection period

Proposed Change to Level Production

➢ Problems (overtime premium, seasonal expansion, idle time of machinery etc.) with the existing method of scheduling production.

➢ Adopting level monthly production would result in substantial savings , estimated at $225,000 in 1994

➢ The increased storage and handling costs of $115,000 would be included 9n operating expenses.

2.

Net Profit

All values in thousands of dollars

Seasonal = 351

Level= 643

Production |  |  |  |  |  |  |  |  |  |  |  |  | |Seasonal Production |84 |98 |112 |98 |98 |98 |112 |1,134 |1,288 |1,498 |1,600 |781 | |Level Production |543 |543 |543 |543 |543 |543 |543 |543 |543 |543 |543 |543 | |

Working Capital Requirements

Seasonal Production |1779 |1027 |1200 |1295 |1329 |1418 |1486 |2432 |3965 |4250 |4491 |3811 | |Level Production |2029 |1735 |2354 |2895 |3381 |3922 |4432 |5279 |6191 |5678 |4978 |3744 | |

The entire forecasting is based on the sales estimate of the company for 1994. If there is any deviation in the estimated sales, the forecast will also need to change. Given the nature of market and company experience in the field we do not expect much deviation in the actual sales from the forecasted sales.

3.

As Toy World changes to a level production, it will produce 543 dollars each month. However, the first seven months it is not selling more than 160 dollars each month (it is selling less than it is...