Toy World, Inc.

1405 Words Jan 24th, 2008 6 Pages
Toy World, Inc. is a fairly healthy toy manufacturing business that is looking at a cross roads in it 's main operating procedure. Jack McClintock is President and partial owner of Toy World. His new production manager, Dan Hoffman, has been on the job through one business cycle (about one year). This toy business is a seasonal business with most of the sales coming between August and December. Since its inception Toy World has followed a seasonal production schedule to match customer demand.

After Hoffman 's short time one the job he has become concerned with Toy World 's method of scheduling production. He has urged McClintock to change methods to a level production schedule (same amount of production hours each month).
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Meaning that Toy World 's already weak cash position will most likely become weaker during the low sales months. Exhibit 3 details the expected cash position on a monthly basis. It had been previously determined that Toy World would need to have at least 200k of cash on hand at the end of each month as this is considered the minimum required amount to operate the business. In order to calculate cash on hand the beginning cash is added to the total cash in and then subtracted from the total cash out. To calculate cash in Monthly Sales are added to the net change in Accounts Receivable then interest income is added and finally Line of Credit disbursement is added. Cash out is derived from Repayment of Long Term Debt, Line of Credit payments, Production Expenses, Operating Expenses, and Tax Payments. The Long Term Debt is amortized at 25k in June and December. Line of Credit payments are the maximum amount available while keeping the minimum 200k on hand balance. Production expenses and Operating expenses are estimated straight line across each month as production levels should be the same every month. Estimated tax payments are made three times a year based on the prior year tax due. Finally there is one payment for tax due from prior year; this is the amount due on top of the prior year estimated payments.

While looking at Exhibit 3 McClintock can see that the line

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