Case Study Toys

Principal of prudence Case Study Toys Galore The Case Toys Galore is a major shaper of toys which faces uncertainty about demand for its toys during the Christmas season. If there is a steep gear demand for toys, and if Toys Galore * Is practicedy able to meet this demand, wherefore it makes redundant revenue enhancement of $4m. * Is partly able to meet this demand, indeed it makes extra revenue of $3m * Is able only to supply at a showtime level, whence it makes no additional revenue. If, however, there is low demand, then it makes no additional revenue.In July, Toys Galore has the option of detonateing take. An expansion will cost $2m. If it expands in July, then it will be fully able to meet a high demand at Christmas. If it decides not to expand work in July, then it has another chance to expand in October. An expansion in October to a fault costs $2m, alone this late expansion does not leave the ac ships comp each sufficient beat to fully meet high demand at C hristmas it can only partly meet any high demand. In October, however, the ABS announces the latest national income figures.Past experience suggests that income figures atomic number 18 high half the time and low half the time. Past experience also suggests that if there is a high national income figure, then there is a 80% hazard of high demand, and if a low national income figure, a 80% prospect of low demand for toys at Christmas. To summarize by expanding production in July, Toys Galore is able to fully meet high demand for Christmas toys, if that occurs. By waiting until October, however, it can make the expansion closing on the seat of better information about Christmas demand. AbstractIn the above crusade study we see that the management of Toy Galore, a major manufacturer of toys faces uncertainty or a dilemma as how to cope up with the demand / supply and at the same time take an fondness on the expected revenues generated for/during the Christmas season. Moreover the company has to choose whether if they want to expand their production during the month of July or October with low and high risk associated with the individual months. Factors instilling our finis Before going on and reservation the decision the company has to look into the following important factors ) Calculated Risk Vs Returns As mentioned in the study as there are many options that the company can opt for but all the options are to be looked in to with respect to the Risk associated with them and The Revenues / Returns generated with each of the option. Options of both expanding and Producing in the month of July or October to meet the Christmas Demand for toys and also the uncertainty or speculation that the income warning might as well change which may / can affect the sales and the demand for the Toys produced. ) Certainty vs. uncertainty As seen in the fibre study there is uncertainty that the demand of the toys may increase or drop based on the historical trends and income patterns. Assuming that the production meets full demand then the company makes maximum revenues i. e. Rise in the income results in the rise of the Demand, Rise in the Demand results in the rise of the toil and the Supply frankincense, Resulting in the Rise in Revenues. But one cannot push aside the uncertainty factor associated and present in the merchandise environment.If the Income decreases then the totally scenario changes i. e. Decrease in the Income results in the decrease in Demand and supply, thus low revenues. 3) Market Competitors Kat onceing that we are the major producer and producer of toys, we still cant ignore the competition that exists or is get in the market. Any opportunity lost can prove to be a big opportunity for the competitors in the market. Suggestions with Reasoning Based on the above factors I would advise the Toy Galore to Invest and expand their production as it will not only help them in the scant(p) run but also in the unyielding R un. Taking the decision to expand its production capacity doesnt only means that it now has the capacity to produce more now and also in the long run but it also conveys a message of stability, strength and boilersuit market dominance to our competitors * Start the production early i. e. in July and incase of any uncertainty or unforeseen event there should unendingly be a backup plan or a contingency. * fulfill safe.There is a likelihood that revenues may increase more in October but again there is an old saying Sometimes your best investments are the ones you dont make. So I will advise the management to start production early in July. * Keeping the ABS reports at hand in case the income and the demand decrease during the Christmas season (keeping both directly proportional) resulting in low sales or stock pileup , we always have the option of subsequently Christmas sales, which not only attract more buyers due to more discounts and decrease in the prices but also boost the r evenues i. . Revenue = v expenditure * quantity. * Those who forget or ignore the past are doomed to borrow it. Market Speculations play an important role while making any managerial decision. The Company instead of ignoring the signs and news prevailing in the market should keep a close eye on the market, Historic Trends and keep in touch with the Statistical and Financial sectors so to keep on collecting the latest facts and figures which will always be helpful when it comes to making important decisions.