Solution to Toy World, Inc.

Case 32A Toy World, Inc. Cash Budgeting

Copyright ( 1996 by the Dryden Press. All rights reserved.

CASE INFORMATION

PURPOSE

This case analyzes a straightforward cash budgeting problem. It is designed to illustrate the mechanics of a cash budget and the way cash budgets are used. Discussion questions focus on the rationale behind the use of cash budgets as well as on their inherent problems. The case also raises the issues of the target cash balance, the optimal size of the credit line, the investment of excess cash, and production scheduling for a seasonal business.

TIME REQUIRED

Without using the model, 3-4 hours of student preparation should be adequate for most students, with possibly another hour or so to write up the case if it must be handed in. Use of the spreadsheet model can greatly reduce preparation time, especially if the completed model or the easy macro version is given to students.

COMPLEXITY

A relatively simple, but with a fair amount of number crunching for students not using the spreadsheet model. However, a number of related issues can be discussed, so students can put in a significant amount of time on the case. Still, they can get the gist of it without too much trouble.

WAYS WE HAVE USED THE CASE

We have used this case in two very different ways. First, with both introductory and not very-well-prepared second course students, we ask them to read the case and to become generally familiar with it, and then we go through the case in class in lieu of a lecture to ensure that students see the issues involved. When we use the case in this manner, we always assign the directed version. The questions in the directed version lead students through the topics we want to address, and they provide structure to the class. The case itself sets the context in which all