Play Time Toy Company Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Play Time Toy Company Case Solution

In contradiction to the increased net profit; the company could face various financial problems if it adopts level production, such as: the amount of the notes payable which the company would have to pay to the bank with the interest. The amount of the interest expense at the end of the year would be $165.4 thousands. Additionally, the accrued taxes are calculated by adding the accrued taxes in previous year and current year taxes for the month. Also, the total purchases of $2700000 steadily incurred throughout the year. Hence, the company would face an increased cost of inventory, account payable and bank interest expense if it adopts the level production.(Harris, 2015).

What are the risks incurred by Playtime and its bank if it switches to level production?

Under the level production; the company would be concerned about the external funding that would be required to support the inventory levels, leading up to the season of holidays. Additionally, under three label predictions; the company would be having larger notes payable and account payables. The high amount of notes payable could restrict the near term cash flows and would make it challenging for the company to keep up with other business expenses. . Furthermore, as per the calculation; it is recognized that the collateral exceeds the required amount of loan, which in turn posits various challenges to the company, such as: an increased overhead, valuation risk, concentration risk, settlement risk and an increase in the operational risk. In addition to this, the company would be required to hold on to the inventory that might be accumulated during the slow period of sales. Hence, this inventory might be expensive for the company to finance, with the related risk of obsolescence.

On the other hand, the bank would face the credit risk if the company switches to the level production due to the fact that if the company would not be able to generate more sales under the level production; it would not be able to pay back the loan amount with the interest. It is so because the company’s sales are only rushed between August and November, and if the company fails to generate high profit returns throughout the year; it would be difficult to repay the loan. Due to an increased requirement of inventory, and no barriers to enter in the industry; taking more loan from the bank for the inventory, could be risky for the company as the toys have short lives and there is relatively higher rate of the company’s failure, followed by the robust and intense competition in design and price of products among the competitors.

Which production plan do you recommend, and why?

Taking under consideration the negative outcomes led by the seasonal production strategy in terms of overtime premium reduced profit returns; seasonal contraction and expansion of the work force resulted in high quality control and training cost as well as the recruiting difficulties. The equipment and machinery stood idle and were subjected to the heavy use, frequent setup changes and short runs caused inefficiencies in packaging and assembly, as the staff encountered challenges in relearning their operations.

Mr. King is recommended to use the level production plan as the monthly production would be determined based on the forecast at the year’s beginning. There would be low cost of goods sold, resulting in higher gross profit. With the employment of the level production strategy; the machineries would not be strained with instant heavy use, during the peak seasons, leading towards better performance of equipment. Additionally, in terms of profitability, a level production strategy would provide a number of benefits to the company, such as: the machineries would not be overused since the production of the goods would be predetermined on the basis of the past experience, lesser training and recruiting challenges, maintained quality of the products and lower cost of goods sold, resulting in an increased net income.

In addition to this, the company is recommended to determine the maximum capacity of the plant on monthly basis, to determine the capacity of the storage in order to monitor the expenses associated with handling and storage as well as insurance of the finished goods. Furthermore, the company should maintain the outstanding schema of collection and monitor the bank payables in appropriate and proper manner. With the level production plan; the company needs to keep the inventory for longer period of time, due to which the company is advised to tie up with the experienced team for an effective logistics’ handling. Lastly, the company should improve its competitiveness by making considerable amount of investment in the research and development, and it should follow the industrial trends and exploit the opportunities, in order to beat the head-to-head competition and drive sales and profit returns............

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Play Time Toy Company Harvard Case Solution & Analysis