Switch to level production right choice?
Would it be a good investment for the bank?
What risks are involved with new production?
* What factors could Mr. McClintock consider in deciding whether or not to adopt the level production plan?
30 day turnover
75% of projected sales- 7.5 million rather than 10 both seasonal and level overproduction of inventory with level production.
* What savings or costs would be involved?
* Overtime is lower/training costs hiring seasonal workers * Profit increase
* Higher inventory and handling costs
* Higher than 2 million loan max.
* Estimate the amount of external funds required and the timing of those needs under the proposed level production plan. Prepare pro forma income statements, balance sheets, and a cash budget to support this estimate. * Double the amount ($4 million in September)
* What are the characteristics of Toy World’s need for external financing? What are the timing, magnitude, and duration of its borrowing needs? How certain are the forecasts, and what factor(s), if changed, would have the most significant impact on your forecasts? * Level they will need it through march to December, much greater financing. * Seasonal they would need it in July, 1.7 million, august and September * Lower sales, would mean a higher loan max 7.1 million * 30 day AR would..
* Would you provide the loan that Toy World would need if it adopts level production? How attractive a piece of business is it for a bank?
No because the loan would need to be double the max, and being in toy industry there is no good collateral. Borrowing base?
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