Toy World Inc Case Solution

Case Solution

A big change from periodic to level output of toys can alter the periodic cycle of Toy World's capital needs and necessitate new bank credit plans. A rewritten type of a young case.

Excel Calculations

Net Savings from Level Production

Pro Forma Balance Sheets Under Level Production, 1994

Pro Forma Income Statement Under Level Production, 1994

Balance Sheet Assumptions

Income Statement Assumptions 

 Inventory for the year 1994

Accrued Taxes for the year 1994

Liability Pattern Comparison 

Questions Covered

What factors could Mr. McClintock consider in deciding whether or not to adopt the level production plan?

What savings would be involved?

Prepare a financial forecast to estimate the company’s funding needs with level production (Prepare pro forma income statements and balance sheets (rather than a cash budget) to make this estimate.  ). For simplicity assume that interest income and expense do not change with the switch to level production. 

Compare the liabilities patterns feasible under the alternative production plans. What implications do their differences have for the risk assumed by the various parties?

What effect will shifting to level production have on the company’s need for a bank loan? How would you go about estimating the change in funds required and the timing of the needs under level production? 

Do you think it is feasible for Toy World to switch to level production? How does the change in funding requirements affect the risk assumed by the various parties? 

What do you think Mr. McClintock should do?