1.

2.

3.

4.

5.

6.

Questions for Toy World Case

What factors should McClintock consider in deciding whether or not to adopt the level

production plan?

What savings would be involved?

Prepare a Pro Forma (projected) income statement for Toy World for 1994 assuming

they adopt the new level production strategy. Please use the same format as Toy

World used for its original 1994 Pro Forma Income Statement that employed their sea-

sonal production strategy.

Project the approximate balance sheet balances Toy World would have in their Cash,

Accounts Receivable, Inventory and "Notes Payable, Bank" accounts if they employed

the new level production strategy. Do not consider any changes to other balance sheet

accounts that may occur as they will all be relatively immaterial (for example, the Ac-

crued Taxes balance would change since Toy World's earnings would change, but the

amount is relatively small). HINT- Accounts Receivable should not change between

the 2 options, but will need to be factored in to correctly project the other items

(cash, inventory, notes payable).

Which alternative presents the most risk to the firm and to its stakeholders? Why?

Based on all of the above, which alternative should McClintock choose? Justify your

decision./nExcel toy-world-student-helper-worksheet_1693366018597 - View-only ✓

Home Insert Draw Page Layout

File

D✓ 0

A3

1

2

3

8

9 Total

4

5

6

Inflows:

7 A/R Collection (Sales from 2 months ago)

X✓ fx ($000's)

A

Interest Income

15 Interest Expense

16

Total

✓12

10

11 Outflows:

12 Payments of A/P

13 Operating Expenses (Assumes paid when incurred)*

14 Wages ($3,510/12)

24

25

26

Net Inflow/(Outflow)

17

18 Beginning Cash

19 Ending Cash Before Loan Increase/(Repayment)

20 Desired Cash Balance

B

Loan Increase/(Repayment)

Formulas Data

I

$

$

$

BA

$

$

$

$

$

$

$

$

$

$

B

$

Jan

Review View

Av

1,965 $

1 $

1,966 $

282 $

205 $

293 $

7 $

787 $

200 $

1,379 $

200 $

(752) $

-

$

627 $

C

Ev ab

Feb

D

E

F

Cash/Notes Payable Budget

Projected 1994 - Level Production

($000's)

940 $

2 $

942 $

250 $

207 $

292 $

4 $

753 $

627 $

816 $

200 $

$

March

-

Help

-

$

816 $

120 $

1 $

121 $

250 $

209 $

293 $

4 $

756 $

816 $

181 $

200 $

19 $

Search (Alt + Q)

Merge v

19 $

200 $

21

22

23 End of Month Loan

End of Month Cash

*Additional Inventory/Storage Costs are prorated based on projected inventory balances by month.

Inventory Level Production Cash-Note Pybl Budget

April

140 $

1 $

141 $

250 $

211 $

292 $

7 $

760 $

200 $

(419) $

200 $

619 $

May

638 $

200 $

160 $

1 $

161 $

250 $

213 $

293 $

12 $

768 $

200 $

(407) $

200 $

607 $

1,245 $

200 $

G

June

$ v

140

1

141

250

215

292

17

774

200

(433)

200

633

1,878

200

←0

.00

H

July

.00

→.0

I

Aug

Conditional Formatting ✓

|

J

K

Sept

pt Oct

Cell Styles ✓

L

Nov

M

Dec

Format As Ta

N/nExcel toy-world-student-helper-worksheet_1693366018597 - View-only ✓

File

5 ✓ ✓

C16

A

1

2

3

4

Home Insert

Month

8 March

5

6 January

7 February

9 April

10 May

A

11 June

12 July

13 August

14 September

15 October

16 November

17 December

x ✓ fx

B

S

FG

Completed

$

$

Draw

$

S

S

Page Layout

✓12

542,500 $

542,500 $

542,500 $

542,500 $

542,500 $

542.500 S

Formulas Data

B I

D

Schedule of Inventory

Projected 1994 - Level Production

COGS

FG

Net Change

78,000 $

91,000 $

104,000 $

91,000 $

91,000 $

Av

91.000 S

464,500 $

451,500 $

438,500 $

451,500 $

451,500 $

451,500 $

= Inventory Level Production Cash-Note Pybl Budget +

Review View Help

Ev ab +

A

E

FG

Beg

586,000 $

1,050,500 $

1,502,000 $

1,940,500 $

2,392,000 $

2.843.500 $

F

FG

End

Search (Alt + Q)

Merge v

1,050,500

1,502,000

1,940,500

2,392,000

2,843,500

3,295,000

G

H

I

$ v

J

←0

.00

.00

→.0

K

Conditional Formatting ✓

L

M

N

Cell Styles ✓

O

P

Format As Ta

Q

R