Toy World Case

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Executive Summary


Transitioning to a level production schedule is projected to eliminate the overtime costs, other direct labor costs, and equipment maintenance costs to an annual savings of around $490,000. The question is, by transitioning to a level production schedule, will Toy World Inc. have enough cash on hand to meet purchasing requirements and pay their employees. Additionally, will a level production schedule result in the need for larger loans to be taken out, and at the end of the year will a level production schedule result in more profit?


Toy World’s estimates have been accurate in the past with regards to how much they are going to sell and how much they are going to purchase to produce
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If the forecasts for sales are inaccurate, then they risk ending up with a large amount of unsold inventory. We have several recommendations that will ensure that the level production method will be successful for Toy World. Recommendation #1: Toy World will need to renegotiate their loan with the bank. The bank for the loan is now almost $4 million, rather than the $2 million limit that previously set the required borrowing amount. Although the firm may now be seen as more risky to the bank, it is shown that Toy World will increase its profits with the new system, so they should be willing to extend the loan.
Recommendation #2: Get customers to pay in 30 days rather than in 60 days. This could be done through penalizing customers with late fees when they don’t pay within the 30 days within which they have agreed upon. This could increase the amount of cash on hand for operations, which could reduce the amount of dependence on the bank for credit.
Recommendation #3: Since we can estimate based on years before the amount of production that Toy World, Inc. is going to have each month, they could move to a Just-in-Time ordering system. This would decrease the amount of raw materials they store locally and even-out cash demands during the year.

Figure 1


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