Essay about Exhibit TN 1

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7/1/2015

Exhibit TN­1

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Toy World Solutions
Exhibit TN­1
Net Savings from level production

Overtime premiums

225,000

Other direct labor savings

265,000

Net savings before financial charges, carrying costs, inventory losses and taxes

490,000

Increase in inventory expense a

103,545

Reduction in income from securit.b 12,820

Increase in storage costs

115,000

Net pre­tax savings

258,635

Les: tax @34%

87,936

Net savings

170,699

Notes:
A ­ Bank borrowings will average
$115,000 higher.
B ­ Cash will average $366,250 less under level production, and it is assumed that excess cash will be invested in T­Bills at an annual yield of
3.5%.

Exhibit TN­1
Toy World, Inc's Pro forma
Balance Sheet under level production, 1994 ($000)

Jan.

Feb.

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Cash

628

816

200

200

200

200

200

200

200

200

200

200

Accounts receivable a

1,060

260

300

300

280

280

300

1,780

3,460

3,980

4,425

3,400

Inventory b

1,050

1,502

1,940

2,391

2,843

3,294

3,733

3,220

2,565

1,714

769

586

Current assets

2,738

2,578

2,440

2,891

3,323

3,774

4,233

5,200

6,225

5,894

5,394

4,186

Net PPE

1,176

1,176

1,176

1,176

1,176

1,176

1,176

1,176

1,176

1,176

1,176

1,176

Total assets

3,914

3,754

3,616

4,067

4,499

4,950

5,409

6,376

7,401

7,070

6,570

5,362

Accounts payable c

250

250

250

250

250

250

250

250

250

250

250

250

106

760

1,367

2,060

2,700

3,341

4,000

3,159

2,087

764

(165)

(257)

(316)

(413)

(474)

(364)

(263)

(89)

105

130

Notes payable, bank d
Accrued taxes e

30

(24)

Long­term debt, current portion

50

50

50

50

50

50

50

50

50

50

50

50

Current liabilities

330

276

241

803

1,351

1,947

2,526

3,277

4,037

3,370

2,492

1,194

Long­term debt

400

400

400

400

400

375

375

375

375

375

375

350

Shareholder's equity f

3,184

3,078

2,975

2,864

2,748

2,628

2,508

2,724

2,989

3,325

3,703

3,818

Total liabilities & equity

3,914

3,754

3,616

4,067

4,499

4,950

5,409

6,376

7,401

7,070

6,570

5,362

http://www.angelfire.com/extreme/zhylik/S/ToyWorld.htm

1/4

7/1/2015

Exhibit TN­1
Footnotes:
A­Assumes a 60­day collection period.
B­From Exhibit TN­4
C­Assumes a 30­day payment period. Dec. 31 balance paid in January and constant balance maintained thereafter at one month's purchases.
D­Figure plugged as the difference between assets and all sources of funds except, bank notes.
E­See footnote(g) to case Exhibit 1, and Exhibit TN­5.
F­The changes are based on the monthly profit figures from the pro forma income statements, listed in Exhibit TN­2.
Exhibit TN­2

Toy World, Inc's Pro forma Income Statement under level production, 1994 ($000)

Jan.

Feb.

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

TOTAL

Net Sales

120

140

160

140

140

140

160

1,620

1,840

2,140

2,285

1,115

10,000

Cost of goods sold a

78

91

104

91

91

91

104

1,055

1,198

1,393

1,488

726

6,510

Gross profit

42

49

56

49

49

49

56

565

642

747

797

389

3,490

Operating expenses b

205

207

209

211

213

215

217

214

211

208

203

202

2,515

Interest expense

7

4

4

7

12

17

21

26

31

30

23

14

196

Interest income

1

2

1

1

1

1

1

1

1

1

1

1

13

Profit / (Loss) before taxes

(169)

(160)

(156)

(168)

(175)

(182)

(181)

326

401

510

572

174

792

Income tax c

(58)

(54)

(53)

(57)

(60)

(62)

(62)

111

136

173

195

59

269

Net profit

(112)

(106)

(103)

(111)

(116)

(120)

(120)

215

265

337

378

115

523
Footnotes:

A ­ At 65.1 % of sales, reflecting labor savings of $490,000. Also assumes constant gross margin each month.
B ­ Operating expenses of $2,400,000 are assumed evenly distributed througout the year. The $115,000 of increased storage and handling costs are allocated to each month on the basis of the inventory outstanding at the
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