2001 Victor E. Sower, Ph.D., C.Q.E.

Hi-Ho Yo-Yo, Inc.

Company Background
Hi-Ho Yo-Yo, Inc. (HHYY) was founded in 1993 by two business school graduates who thought
there ought to be alternatives to the video game craze. Searching for a toy that could have mass
market appeal they settled on yo-yos. Yo-yos have a nostalgic appeal to the baby boomer
generation and are a novelty plaything for generation X. So, the main marketing thrust of HHYY is
directed toward parents and grandparents rather than to the children who will actually play with the
yo-yos. The latest advertising campaigns show 50-ish men competing in 1950s era yo-yo
competitions, grandmothers showing their grandsons how to do yo-yo tricks, and pre-teen girls
trying to get their yo-yos away from their dads who are monopolizing them. This advertising
campaign has been highly effective. After a couple of rough start-up years, HHYY achieved
profitability in 1996 and has seen sales and profits increase each year since then.
HHYY is a closely held Subchapter S Corporation with all the stock being held by the founders and
their family members. The founders, John Cooper and Juan Martinez share the position of Office of
the CEO. John is also the Chief Operating Officer (COO) while Juan is the Chief Financial Officer
(CFO). An organization chart for HHYY is in Figure 1. The firm employees about 350 people in a
single location in the suburbs of Cut and Shoot, Texas.
Figure 1. Hi-Ho Yo-Yo, Inc. Organization Chart
Office of the CEO
Legal
COO
Production
Plant Manager

QA
Design

CFO

Purchasing

HR

Marketing

Accounting

Engineering

Advertising
Trade
General

Sales
Custom
Large Accounts

Finance

2001 Victor E. Sower, Ph.D., C.Q.E.

Products
HHYY produces four distinct lines of yo-yos (see Table 1) and sells through two distinct channels
of distribution. The Premium Prestige line consists of high margin, low volume yo-yos produced in
brushed aluminum. The Superior Prestige line is a moderate margin, moderate volume line of yoyos produced of painted wood with rhinestone inserts. The Prestige line of yo-yos is a low margin,
high volume line of painted wood yo-yos. The Prestige lines of yo-yos are sold through traditional
distribution channels to toy stores and small chains. Recently, contracts were signed with two very
large retail chains and the Large Account Sales Group was created within the Trade Sales
Department to manage these accounts.
The Custom line consists of Premium Prestige and Prestige yo-yos which have company logos or
advertising messages added. Corporate clients purchase these yo-yos to be given away as premiums
or for use in promotional campaigns. This line is marketed directly to corporate clients by the
General Sales Department.
Table 1. HHYY Product Lines
Line

Percent of FY 2000 Sales

Premium Prestige

5%

Superior Prestige

20%

Prestige

45%

Custom
Premium Prestige Custom
Prestige Custom

5%
25%

A generic tree structure bill of materials for HHYYs yo-yos is shown in Figure 2.

2001 Victor E. Sower, Ph.D., C.Q.E.

Figure 2. Generic Bill of Materials (no packaging)

Yo-Yo

(2 ea)

(1 ea)

Painted
Yo-Yo Half

(3.5 ml)

Paint

Waxed Looped
String Asbly.

(10 ft)

(1 ea)

Unpainted
Half

String

(1 ea)

Wood
Blank

(.045 bd ft)

Wood Block

(0.2 ml)

Glue

(1 ea)

Dowel

(1.5 mg)

Bees Wax

(1 in)

Dowel
Rod

2001 Victor E. Sower, Ph.D., C.Q.E.

Facility
The companys headquarters and manufacturing facility are housed in one building just outside Cut
and Shoot, Texas. The facility layout is in Figure 3. Nominal plant capacity is 400,000 yo-yos per
40 hour work week. The facility location is convenient to both US Highway 59 and Interstate 45.
All receipts and shipments are by common carrier. The company owns two pickup trucks and a
bob-tail truck for use in picking up MRO items and general transportation needs. The company also
owns three distribution warehouses located in Boston, Chicago, and San Francisco where it stores
finished product for shipment to customers.
Figure 3. Facility Layout
Employee Entrance
Lobby
Administrative Offices

Engineering, Maintenance,
Design Offices

QA
Dept.

Break
Room

Assembly

String
Fabrication

Rework

Packaging

Metal Shop
Pad
Printing
Paint Shop

Supv.
RM
Warehouse
Wood Shop

Shipping &
Receiving

FG
Warehouse

2001 Victor E. Sower, Ph.D., C.Q.E.

Key Employees
John Cooper, CPIM. Co-CEO and COO. BBA in Management 1990 from Sam Houston State
University with Emphasis in Operations Management. Two years experience as Operations
Manager, Acme Toy Co. The idea man in this venture.
Juan Martinez, CPA. Co-CEO and CFO. BBA in Accounting 1988 from Sam Houston State
University with minor in Finance. Four years experience in public accounting with Carroll &
Sower, LLP. The numbers man in this venture.
Anne Carroll, PE, CPIM. V.P. Production. BS 1989 in Industrial Engineering from Virginia Tech.
Six years experience in process engineering and engineering management with Lane Furniture.
Joined HHYY in 1995. Very strong personality.
Mary Pat Walker. V.P. Marketing. BBA 1977 in Marketing from William & Mary University;
MBA 1988 from Auburn University. Ten years product management experience with Proctor &
Gamble, nine years in marketing management with Radio Shack. Joined HHYY in 1996. Highly
competent. Good delegator--practices a hands off management style.
Wayne Taylor, CQE. Director of QA. BS 1988 in Statistics from Howard University. Seven years
experience with NIST. Joined HHYY in 1995. A genius. Very strong technically.
Allen Hayes, CPM. Director of Purchasing. BBA 1994 in Management from Sam Houston State
University. Joined HHYY in 1994. Progressive. Introduced the concept of supply chain
management to HHYY.
Sarah Chen. Director of Human Resources. BBA 1992 in Management from Roanoke College.
Six years experience in HRM with Orion Industries. Joined HHYY in 1998. Has her finger on the
pulse of the workforce. Helps head off morale problems.
Carey Fuller. Director of Finance. BBA 1994 in Finance from BYU. Two years experience in
venture capital with Bent & Bent, LLP. Joined HHYY in 1996. Able to squeeze 11 cents from
every dime.
Ian Winlof, CPA. Director of Accounting. BBA 1996 in Accounting from the University of Texas
at Austin. Two years experience in public accounting with Carroll & Sower, LLP. Joined HHYY in
1998. Introduced concept of quality costs to HHYY.
Jeff Baker. Plant Manager. Twenty five years experience in furniture manufacturing starting as a
machine operator and progressing to foreman and plant superintendent. Joined HHYY in 1996.
Hands on manager. Knows every phase of the operation.
Robby Knoght. Sales Manager. BBA 1978 in Marketing from Texas Tech University. Eighteen
years experience in toy sales with Ace Playthings. Joined HHYY in 1997. Very strong personality.
Knows how to close a sale.

2001 Victor E. Sower, Ph.D., C.Q.E.

Past Years P & L

Sales for FY 2003 are about 5% higher than for FY 2002. Profits for FY 2003 are up by about 4%
over FY 2002. Product prices were generally flat in FY 2002 and FY 2003 and are projected to stay
flat through FY 2004.
Hi-Ho Yo-Yo Statement of Profit & Loss for FY 2003
FY 2003

Percent of
Sales

SALES
Gross Revenues
Less Sales
Returns

$32,356,128
1,633,534

5.32

Net Revenues

30,722,594

100.00

Cost of Goods
Sold

22,895,818

74.52

Gross Profit

7,826,776

25.48

Less S, G, & A

3,636,218

11.84

545,821

1.78

3,644,737

11.86

663,263
-5,398
1,489,533
6,675,111
-12,806
196,020
9,005,723

2.16
-0.02
4.85
21.73
-0.04
0.64
29.31

291,631
423,876

0.95
1.38

2,288,258
1,137,588
4,141,353

7.45
3.70
13.48

Less R & D Exp.

NET PROFIT OR LOSS
COGS
Direct Materials
Freight In
Mat'l. Price Variance
Mat'l. Usage Variance
Std. Material Cost
Purchase Discounts
Inventory Adjustment
Total Materials
Direct Labor
Labor Rate Variance
Labor Efficiency
Variance
Std. Labor Cost
Downtime
Total Labor

2001 Victor E. Sower, Ph.D., C.Q.E.

Indirect Mfg. Costs
Depreciation
Safety & Insurance
MRO Supplies
Occupancy Cost
Salary Supv.
Salary Indirect
Salary Engineer
Salary QA
Rework Labor
Repairs
Property Taxes
Utilities
OH Variance
Total Indirect Mfg.
Costs

TOTAL
COGS

2,856,017
446,501
502,765
557,652
368,519
1,232,139
352,040
408,366
604,327
305,817
789,512
1,255,437
69,650
9,748,742

9.30
1.45
1.64
1.82
1.20
4.01
1.15
1.33
1.97
1.00
2.57
4.09
0.23
31.73

22,895,818

74.52

2001 Victor E. Sower, Ph.D., C.Q.E.

Process Description
Superior Prestige and Prestige Lines
Raw materials are received and stored in the Raw Materials Warehouse after being inspected and
approved by the QA Department. Square cross section 4-foot long wood blocks are taken to the
Wood Shop where they go through a surface plane to smooth the surface and size the block. Planed
blocks are cut into yo-yo blanks at the saw station. The blanks then go to a proprietary CNC
combination lathe where the square blanks are turned into circular blanks, the edges are milled, the
center hole is drilled, and the outer surfaces are sanded. Wooden dowels are cut to 1-inch lengths in
the Wood Shop.
Yo-yo halves are painted in the Paint Shop. A fast drying enamel paint is applied in a continuous
process, automated paint booth and the painted halves are dried in a continuous-feed oven.
In the String Fabrication Shop, cotton string is doubled, twisted and waxed with bees wax. A finger
loop is tied at one end of the string. This is a manual operation.
Yo-yos are assembled in the Assembly Department. Glue is applied to both ends of the dowel
which connects the two halves. The string is slipped over the halves and wound around the dowel.
Rhinestones are glued and pressed into both halves of the Superior Prestige yo-yos simultaneously.
The yo-yos are then bulk packed into special containers and sent to Packaging.
In the Packaging Department, yo-yos are packaged in blister packs on a 12-up machine. Packaged
yo-yos are boxed 12 to an inner carton12 inner cartons to a master carton, for a total of 144 yoyos per master carton.
Quality Assurance inspectors check the output of each step in the process. A sample of each lot of
yo-yos from Assembly is subjected to destructive testing for safety and durability. Each process
shop uses attribute charts to control their processes. QA uses acceptance sampling procedures to
approve each outgoing lot of finished yo-yos before they are moved to the Finished Goods
Warehouse. Defective individual yo-yos and rejected lots of finished yo-yos are sent to the Rework
Department for 100% inspection, rework, and final disposition.
Premium Prestige Line
Raw materials are received and stored in the Raw Materials Warehouse after being inspected and
approved by the QA Department. Square cross section 8-foot long aluminum bar stock is cut into
1.5 oz. yo-yo blanks in the Metal Shop. The blanks then go to a proprietary CNC combination lathe
where the square blanks are turned into circular blanks, the edges are milled, and the center hole is
drilled. The outer surfaces are given a brushed finish by hand. Aluminum dowel is cut into 1-inch
lengths in the Metal Shop. Blanks and dowels then go to Assembly where they are assembled in the
same way as the Prestige Line, and then to Packaging.

2001 Victor E. Sower, Ph.D., C.Q.E.

Custom Lines
One additional step is required for Custom Line yo-yos. Each painted blank is pad printed with the
appropriate corporate logo or advertising message in the Pad Printing Shop. Custom Line yo-yos
are not blister packaged. They are bulk packaged with 10 per inner carton and 100 per master
carton. There is a one-time artwork charge of $200 per order. All pad printing is one color only.

Manufacturing Master File

The Manufacturing Master File is a proprietary document which provides information for costing
and pricing, and production planning including purchasing and scheduling. It contains bill of
material (BOM) information, standard labor and overhead costs, standard production rates, and
basic routing information. Cost information is presented as the cost per 1,000 units to prevent small
fractions or many decimal places. The bill of material information is presented in modular format.
Accounting uses the Master File to determine standard costs for P&L and pro-forma purposes.
They also calculate and report labor efficiency based on Master File labor standards. The standard
direct labor rate for the Metal Shop is $20.00 per hour, for the Wood and Paint Shops $10.00 per
hour, and $7.50 per hour elsewhere in the factory. The standard overhead rate is 175% of the
standard labor cost in the Metal Shop and 270% of the standard labor cost elsewhere in the factory.
Marketing uses the Master File information to prepare quotations for Custom Line orders. They
also use the information to determine target pricing prior to entering into negotiations with major
customers. Master File information also is useful in developing promotion and price discount
options for the standard lines. They use the master schedules developed from the Master File
information to project product availability for distributors and customers.
Operations uses the Master File as the input to the MRP and CRP systems. Purchasing schedules,
production schedules, and labor forecasts are based on Master File information. HR uses the
schedules developed from the Master File to assess personnel and training needs.
Design Engineering produces the first BOM for new or revised products. Process Engineering
actually maintains the Master File. The Master File is routinely updated at the beginning of each
fiscal year. This update and any subsequent non-routine changes to the Master File must be
approved by Accounting and the COO and CFO. Very few non-routine changes are approved.

2001 Victor E. Sower, Ph.D., C.Q.E.

Description

HHYY Master File

Matl. Cost

Labor Cost

Part Number 100-101

Painted Half SA-202
224.170
142.525
String Assembly S-901
2.020
25.250
Glue SG-333
0.500
Dowel SA-506
11.220
3.400
Assembly (250/OP hr.)
30.000
Blister Card BC-100
75.000
Blister LDB-107
65.000
Inner Ctn. IC-309
9.300
Master Ctn. MC-204
4.750
Packaging (4320/OP hr)
1.736
Prestige Line
391.960
202.911
Selling Price
1.25 ea.
GM = 8.58%

OH Cost

FDC

STD

384.818
68.175

751.513
95.445
0.500
23.800
111.000
75.000
65.000
9.300
4.750
6.424
1142.732

2.02 ea
1.01 ea
0.20 ml
1.02 ea
250
1.01 ea
1.01 ea
0.083 ea
0.007 ea
4320

9.180
81.000

4.688
547.861

Part Number 200-101

Painted Half SA-202
224.170
142.525
384.818
751.513
2.02 ea
String Assembly S-901
2.020
25.250
68.175
95.445
1.01 ea
Glue SG-333
0.500
0.500
0.20 ml
Dowel SA-506
11.220
3.400
9.180
23.800
1.02 ea
Rhinestones RH-700
40.000
40.000
8.00 ea
Assembly (150/OP hr.)
50.000
135.000
185.000
150
Blister Card BC-200
95.000
95.000
1.01 ea
Blister LDB-107
65.000
65.000
1.01 ea
Inner Ctn. IC-309
9.300
9.300
0.083 ea
Master Ctn. MC-204
4.750
4.750
0.007 ea
Packaging (4320/OP hr)
1.736
4.688
6.424
4320
Superior Prestige Line
451.960
222.911
602.961
1276.732
Selling Price
2.08 ea.
GM = 38.62%
Part Number 400-101
Aluminum Half SA-304
String Assembly S-901
Glue SG-333
Dowel SA-506
Assembly (250/OP hr.)
Blister Card BC-400
Blister HDB-304
Inner Ctn. IC-309
Master Ctn. MC-204
Packaging (4320/OP hr)
Premium Prestige Line
Selling Price
4.05 ea.

427.125
2.000
0.500
11.000

247.890
25.000

433.824
67.500

7.500
30.000

20.250
81.000

1.736
642.675
312.126
GM = 61.43%

4.688
607.262

105.000
85.000
8.300
3.750

1108.839
94.500
0.500
38.750
111.000
105.000
85.000
8.300
3.750
6.424
1562.063

2.01 ea
1.01 ea
0.20 ml
1.02 ea
250
1.01 ea
1.01 ea
0.083 ea
0.007 ea
4320

2001 Victor E. Sower, Ph.D., C.Q.E.

Part Number Prestige Custom

(Exclusive of artwork charge)
Painted Half SA-202
224.170
142.525
String Assembly S-901
2.020
25.250
Glue SG-333
0.500
Dowel SA-506
11.220
3.400
Assembly (250/OP hr.)
30.000
Ink IC-600
10.000
Printing (1200/Op hr)
6.250
Inner Ctn. IC-405
15.300
Master Ctn. MC-408
8.750
Packaging (3000/OP hr)
2.500
Prestige Custom
271.960
209.925
Selling Price 1.82 ea.
GM = 42.38%
Part Number Premium Prestige Custom
(Exclusive of artwork charge)
Aluminum Half SA-304 427.125
247.890
String Assembly S-901
2.000
25.000
Glue SG-333
0.500
Dowel SA-506
11.000
7.500
Assembly (250/OP hr.)
30.000
Ink IC-600
10.000
Printing (1200/Op hr)
6.250
Inner Ctn. IC-405
15.300
Master Ctn. MC-408
8.750
Packaging (3000/OP hr)
2.500
Premium Prestige Custom
474.675
319.140
Selling Price 5.15 ea.
GM = 72.43%

384.818
68.175
9.180
81.000
16.875
6.750
566.798

433.824
67.500
20.250
81.000
16.875
6.750
626.199

751.513
95.445
0.500
23.800
111.000
10.000
23.125
15.300
8.750
6.25
1048.683

2.02 ea
1.01 ea
0.20 ml
1.02 ea
250
0.10 ml
1200
0.100 ea
0.010 ea
3000

1108.839
94.500
0.500
38.750
111.000
10.000
23.125
15.300
8.750
9.250
1420.014

2.01 ea
1.01 ea
0.20 ml
1.02 ea
250
0.10 ml
1200
0.100 ea
0.010 ea
3000

2001 Victor E. Sower, Ph.D., C.Q.E.

Part Number SA-202 Painted Half

Unpainted Half
89.100
Paint SP-106
21.875
Painting (2000/OP hr)
Painted Half
110.975

65.557

177.004
13.500
190.504

331.661
21.875
18.500
372.036

1.00 ea
3.50 ml
2000

5.000
70.557

Part Number SA-Unpainted Half

Wood Blank
89.100
Turning (240/OP hr)
Unpainted Half
89.100

23.890
41.667
65.557

64.503
112.501
177.004

177.493
154.168
331.661

1.00 ea
240

Part Number SA-Wood Blank

Hardwood Stock
89.100
Planing (1000/OP hr)
Cutting (720/OP hr)
Wood Blank
89.100

10.000
13.890
23.890

27.000
37.503
64.503

89.100
37.000
51.393
177.493

0.45 BF
1000
720

67.500
67.500

0.500
1.500
92.500
94.500

10.0 ft
1.50 mg
300

9.000
9.000

11.000
12.333
22.333

1.00 in
3000

35.000
35.000
145.833
215.833

212.500
55.000
55.000
229.166
551.666

1.5 oz
1000
1000
240

Part Number S-901 String Assembly

Cotton String
0.500
Bees Wax
1.500
Twisting (300/OP hr)
String Assembly
2.000
Part Number SA-506 Dowel
Dowel Rod
Cutting (3000/OP hr)
Dowel

25.000
25.000

11.000
11.000

Part Number SA-304 Aluminum Half

Aluminum Bar Stock
212.500
Cutting (1000/Op hr)
Milling (1000/Op hr)
Finishing (240/Op hr)
Aluminum Half
212.500

3.333
3.333

20.000
20.000
83.333
123.333