Toy world case study

955 Words4 Pages
TOYWORLD
CASE STUDY

Prepared By:
ABDULLAH AL-SHAHRANI
MOHAMMED AL-JUHANI

Background:
ToyWorld, Inc. was founded in 1973 by David Dunton. Before that, he had been employed as production manager by a large manufacturer of plastic toys. Mr. Dunton and his former assistant, Jack McClintock, established Toy World, Inc. with their savings in 1973. Originally a partnership, the firm was incorporated in1974, with Mr. Dunton taking 75% of the capital stock and Mr. McClintock taking 25%. The latter served as production manager, and Mr. Dunton, as president, was responsible for overall direction of the company’s affairs. After a series of illnesses, Mr. Dunton’s health deteriorated, and he was forced
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Because, in first months we will produce more than what we will sell so the expense for storage and inventory will increase under the level monthly production.
Overall, the most important figure in the income statement is the net income which increased from $351,000 under seasonal production to $521,000 under level monthly production.

Ratios.
Level
Seasonal

14.5%
9.62%
Return on equity
9.8%
6.5%
Return on asset
In analyzing ratios, we recognized an improvement in both return on equity and return on asset ratios if we adopt the level monthly production.

Cost savings under level monthly production.

If we change to level monthly production, we can save up to $169,000. Mainly, this savings come from reducing overtime premium by $225,000 and other direct labor savings by $265,000. Although, the storage costs will increase by $115,000 but we still will end up with $169,000 as savings.

Advantages:
The main advantages of adopting level monthly production are:
- Net income increases by $169,000 as we showed above.
- ToyWorld is approaching full capacity during seasonal production peak, the adoption of level monthly production postpones the need for additional investments in fixed assets.

Disadvantages:
Any change even if it is a good one, has to come along with some disadvantages. The main disadvantages of adopting level monthly production are:
- Required bank borrowing from June to November is
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