Introduction
At Toy World Inc., President Jack McClintock is considering the adoption of a level monthly production plan for the coming year. The manufacturer of children’s plastic toys currently employs a production plan that follows the seasonality of sales. In considering whether to implement a level monthly production schedule, we compared the benefits and costs of both methods in relation to the financial and operational needs of the business. This allowed for an in-depth analysis of the savings allowed by a level monthly production schedule, and the impact of such a system on timing, cash flow and risk. As a toy manufacturer, Mr. McClintock’s company would face unique risks under the proposed system of production. These risks were compared to those accepted under a seasonal production schedule. By completing this analysis, we determined that Toy World Inc. would benefit the most from maintaining a seasonal production system. However, since a level monthly production plan would result in cost savings for the company, we have presented options through which Mr. McClintock can manage the financial implications of this schedule.
Benefits of Level Monthly Production
Mr. McClintock can expect to see savings of $490,000 in labour costs under this production system. These savings would be reflected in a lower cost of goods sold (70% of sales to 65.1%). A level monthly production plan allows the removal of overtime wage premiums in peak seasons, resulting in savings of $225,000, and streamlining of production, resulting in $265,00 in direct labour savings. Further benefits include minimizing machine wear, as a consistent schedule would prevent equipment from being used for 16 hours a day after staying idle during off-peak times. Regular and predictable usage of equipment would also assist Mr. McClintock in planning routine maintenance and setup schedules. In