Toy World Summary

Corporate Finance

Submitted by: Pranav Bharara (G008)

Since 1973, Toy World, Inc. has been creating toys for children. Profitable operations have been
maintained by the company since 1976. Revenue and profit were close to $8 million and $270,000,
respectively, at the end of 1993. With Jack McClintock as president and Dan Hoffman as production
manager, the two have attempted to devise a plan for adapting operations to the volatile toy
industry. Toy sales are seasonal, peaking from August to December and remaining generally flat
during the rest of the year. The company's manufacturing schedule has been impacted by
seasonality. Inventory is low during the off season, skilled people are underutilised, and machinery is
left idle.

When the busy season approaches, Toy World is compelled to hire more employees, pay extra
overtime payments, and operate at maximum capacity. Dan Hoffman detects flaws in this schedule
and recommends a level production plan that eliminates overtime wages and maximises the use of
experienced personnel. Toys would be created evenly every month under his plan, allowing
inventory levels to grow in the months leading up to the holidays. To compensate for the high
inventory levels, the corporation needs take out additional loans in addition to using cash. Hoffman's
technique may boost overall profitability in an industry with relatively minimal capital requirements,
but it jeopardises the company's liquidity.