DORINA C.

MALAMUG Play Time Toy Company

I agree with the proposal to adopt a new production process since regardless of which method is used, the companys sales are seasonal with 80% of dollar volume sold between August and November. Under seasonal production, the cost of goods sold is 70% of sales. However, under level production, the cost of goods sold would slightly decrease to 61.16% of sales. With either production method, operating expenses will likely incur evenly throughout each month. Having a new process they will reduce some of the expenses and will be able to focus more on producing the more sellable items for them. And the president of the Play Time Toy Company feels that much inefficiency currently exists under seasonal production. For instance, overtime reduces the companys profits. He estimated that by switching to level production, a cash savings of $200,000 would result by eliminating overtime premiums. In addition, he noticed that seasonal expansion and contraction of the workforce results in high training and quality control costs. Also, machine idleness for seven months followed by heavy usage for five months contributes to labor inefficiencies. King believes that direct labor savings of $235,000 will result from orderly, level production. However, higher storage and handling costs of $100,000 will slightly offset the savings.

Hampton Machine Tool Company

The problem currently facing Hampton Machine Tool Company is the ability to payback its current loan and the additionally requested loan from the St. Louis National Bank. If Hampton carries forward as planned they will be short $331,500. Ways to fix the current problem are to not pay dividends; this will save $150,000 but still leave them at a shortage of $181,500. Payment of dividends would be a nice gesture to stockholders that have stood by them, but may be at too great of cost. Stockholders do not want to see the stock ultimately become valueless. They would rather forgo dividends now if it means their stock will still have value and they may receive dividends in the future. Not paying the dividends is the number one thing Hampton must remove from their current cash budget plan. They should also change their billing policy to help finance the projects. They should bill their customers monthly based on the percentage of completion method currently a general accepted accounting principle. This will help them match the cash flows from the jobs with related expenses and will remove their cost of financing the jobs. This is an assumption that

changing away from their current billing process will not result in lost jobs in the future. They will not be able to start this with their current jobs, but rather new ones coming in. If they are able to start these new jobs by October they will be able to bill the consumers at the end of October and expect payments from them by the end of November. The consumers billed at the end of November should get their payments in be December 30th given the current net 30 payment terms which would make it sufficient time for this amount to be available to help repay the loan.

Advanced Medical Technology Corporation

As Mr. Winter, I would recommend a loan to Advanced Medical Technology Corporation (AMT). There are several reasons why I would recommend a loan to AMT. The biggest factor is this company is still in the growth / infancy stage of its life cycle. They have invested large amounts of capital into the research and development, and marketing of its products, and it is too soon to see the rewards from these investments. Some of the changes that need to be made in order for a loan to be approved for AMT include improving manufacturing efficiencies, short-term loans, operations, and managing their accounts receivables. The manufacturing operations of AMT can be streamlined which will enable AMT to see greater profits. Right now they are building in ten to twelve week lot sizes, and they are not always making the products they need. With the investment into an information system, they can streamline this process. This was installed in 1984, and they are making progress. I would recommend reshuffling some positions in order to obtain the full benefit of the information system. They can build larger lot sizes of some products which will cut down on the direct labor costs for the materials. Making only the products they know they have demand on will minimize the excess and obsolesce amount they have to reserve for each quarter. AMT can also improve its accounts receivable days outstanding ratio by having more control over its A/R. Having someone do background checks on new customers instead of granting all new customers the same 30 days. Some customers with poor credit history should be given no credit, and must pay COD or before the products are shipped to minimize risk of default.