Toy World, Inc. was founded in 1973. Toy World is a manufacturer of plastic toys for children. In the past, the company’s production schedules had always been highly seasonal, which reflected the seasonality of its sales. In, January 1997, the president and part owner of Toy World, Inc. began considering a proposal to adopt level monthly production for the coming year. The production manager speculated that about $265,000 in savings would result from level production. Cost of goods sold would be reduced to 65.1% from 70% under level productions. However, costs for storage would increase by $115,000.
The major issue of this case for Toy World Inc. is that of efficiency, and specifically how it relates to operations (production). The use of seasonal production obviously increases the companies operating expenses and therefore reduces its bottom line. Another problem for Toy World, not directly quantified by cost that is inherent in the use of seasonal production is that of overuse of their machines. For 7 months of the year the company’s machines are hardly used, and then for the high seasonal production they are used strenuously. This increases the wear and tear on the company’s equipment and indirectly results in less profitability and efficiency.
Alternative Courses of Action:
1) Complete Level Production
2) Moderate Level Production with some seasonal production
3) Complete Seasonal Production
Analysis of Alternatives:
The company could go with the high risk option, which would be total level production. In this case the company would evenly distribute its production throughout the year which would reduce cost, but increase the risk that not all items are sold. The company could also implement a moderation of this idea in which they produce level throughout the year of items that are highly likely to sell, and then produce question mark items in the season when more...