Walnut and associates
Q1) What factors should Mr. McClintock consider in deciding whether or not to adopt the level production plan?
Q2) What savings would be involved?
If Dan Hoffman could convince Mr. McClintock to adopt the level production from the seasonal production method for Toy World savings would include costs from labor wages but it may also be offset by storage and handling costs of the inventory for the corporation. Dave Hoffman estimated that a savings of about $225,000 would result of the adoption of the level production method. These savings would be a result of overtime wage premiums. Overtime wages wouldn’t need to be expended for in the peak months from August through December under level production. It is understood that more hours may need to be worked by employees during non-peak months to compensate for less toys being produced during peak months. This results in a savings for the company because Toy World is now playing employees under regular hourly rates rather than overtime hourly rates.
The next savings that Toy World would encounter by adopting the Level production method over the Seasonal production method is an additional $265,000 from direct labor savings. We understand that this is due to averaging the amount of hours worked by employees throughout the year instead of increasing direct labor hours worked during the peak months of the year for Toy World. We came to the conclusion that many overworked in employees during the peak months will perform inefficiently, as well as very ineffectively. This will result in more errors in the production of toys resulting in an increase hours worked and higher wage costs for Toy World. By leveling the production of toys throughout the year it allows for employees not to be overworked in any given month, resulting in more effective and efficient employees. With more effective and efficient employees results in fewer errors in the production of toys as well as decreasing hours and wages paid to
Q2) What savings would be involved?
If Dan Hoffman could convince Mr. McClintock to adopt the level production from the seasonal production method for Toy World savings would include costs from labor wages but it may also be offset by storage and handling costs of the inventory for the corporation. Dave Hoffman estimated that a savings of about $225,000 would result of the adoption of the level production method. These savings would be a result of overtime wage premiums. Overtime wages wouldn’t need to be expended for in the peak months from August through December under level production. It is understood that more hours may need to be worked by employees during non-peak months to compensate for less toys being produced during peak months. This results in a savings for the company because Toy World is now playing employees under regular hourly rates rather than overtime hourly rates.
The next savings that Toy World would encounter by adopting the Level production method over the Seasonal production method is an additional $265,000 from direct labor savings. We understand that this is due to averaging the amount of hours worked by employees throughout the year instead of increasing direct labor hours worked during the peak months of the year for Toy World. We came to the conclusion that many overworked in employees during the peak months will perform inefficiently, as well as very ineffectively. This will result in more errors in the production of toys resulting in an increase hours worked and higher wage costs for Toy World. By leveling the production of toys throughout the year it allows for employees not to be overworked in any given month, resulting in more effective and efficient employees. With more effective and efficient employees results in fewer errors in the production of toys as well as decreasing hours and wages paid to