Toy World Inc

Toy world Case

Introduction

Toy world is a toy company that follows seasonal production. A new manager has the idea that level production would earn the company more profits. The balance sheets and the income statements are given in the case for seasonal production. The task before us is to calculate the effect of level production if employed. Also we have to find to effect of cash if level production is pursued.

The same interest would be paid under level production as well as under seasonal production whereas the interest would increase for short-term loans in the case of level production. The level of ending inventory is the same in both seasonal and level production method The increased storage cost is split in the various months in the ratio of the levels of inventory at the end of each month The income tax is paid @ of 34 %.

The following are my observations and inferences -

Cash: cash figures are $ 7.8 million for seasonal production and $ 3.4 million for level production. This is because of the increased inventory handling costs associated with level production.

Inventory: there is a huge difference in inventory numbers. At any point of time excluding November and December, inventory figures for level are around 200