Level Production and Working Capital Management of Toy World, Inc - Essay Example

 Seasonal production utilized man and machinery, as well as other resources of the organization in conjunction with the level of seasonal sales. For toys, the level of production is at its peak period during the Christmas season. For the rest of the year, there is almost no production and machinery and labor standstill. Machinery was usually idle for about seven and a half months during lean periods and would be subjected to heavy use on peak levels.

This type of production has the following effects: (1) recruitment difficulties and training during peak levels; (2) overtime work reduces profits; (3) frequent set-up changes in machinery schedule creates confusion and inefficiencies as workers had to relearn operating procedures; and (4) increased susceptibility to encounter problems in the supply for materials to be procured to meet increased production during peak levels. Level productions would eliminate overtime premiums; would stabilize production runs and schedules; and orderly production would tantamount to labor savings by eliminating inefficiencies and wastage, among others.

However, this type of production would increase storage and handling costs. Working Capital Management According to Viscione (1977, 6), “the total of current is often referred to as the working capital of the firm and the difference between current assets and current liabilities is defined as net working capital”. In this regard, working capital management simply oversees the planning, organizing, directing, and controlling of working capital. Using the seasonal production type, Toy World Inc.

needs to build up working capital prior to peak production. The firm would have to consider other options for funds to finance inventory build-up (such as bank loans). Further, the level of production highly depends on an accurate sales forecast. Any significant deviation from projected sales would cause an increased level of production which could mean unsold inventories; thereby creating problems in bank repayments (when loans are contracted). Analysis The proposed level of production would actually increase potentials for profitability.