06-Playtime

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Play Time Toy Company[1] Play Time Toy faces a highly seasonal pattern of sales. In the past, Play Time has used a seasonal production schedule, where the amount produced each month matches the sales for that month. Under this production plan, inventory is maintained at a constant level. The production manager, Thomas Lindop, is proposing a switch to a level, or constant, production schedule. This schedule would result in significant savings in production costs but would have higher storage and handling costs, fluctuating levels of inventories, and would also have implications for financing. Jonathan King, president of Play Time Toy, has been reviewing pro forma income statements, cash budgets, and balance sheets for the coming year…show more content…
Construct a trade-off curve between optimal annual profit and the maximum loan balance. Table 1: Seasonal Production (Annual net profit = 237) | |Actual |Projected for 1991 | | |Dec 1990 |Jan | |BALANCE SHEET |Dec 1990 |Jan | | |Dec 1990 |Jan | BALANCE SHEET |Dec 1990 |Jan |Feb |Mar |Apr |May |June |July |Aug |Sept |Oct |Nov |Dec | |Cash |175 |556 |724 |175 |175 |175 |175 |175 |175 |175 |175 |175 |175 | |Accts receivable |2,628 |958 |234 |271 |270 |250 |250 |270 |1,603 |3,113 |3,580 |3,982 |3.063 | |Inventory |530 |948 |1,355 |1,749 |2,157 |2,564 |2,971 |3,365 |2,904 |2.314 |1,549 |697 |530 | |Net P/E |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 |1,070 | |Total Assets |4,403 |3,533 |3,383 |3,265 |3,672 |4,059 |4,466
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