Question

Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer season. Units sold are anticipated as follows Monthly Unit Sales March April May June 3,600 7,600 12,200 10,200 33,600 Total units sold If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory buildup The production manager thinks the preceding assumption is too optimistic and decides to go with level production to avoid being out of merchandise. He will produce the 33,600 units over four months at a level of 8,400 per month. a. What is the ending inventory at the end of each month? Compare the unit sales to the units produced and keep a running total March April May June Ending Inventory units units units units b. If the inventory costs $20 per unit and will be financed at the bank at a cost of 6 percent, what is the monthly financing cost and the total for the four months? (Use .5 percent as the monthly rate.) Inventory Financing Cost March April May June Total financing cost

Answer 1

a.ending inventory at the end of each month:

month	ending inventory	working (opening stock + production - sales)
march	4,800 units	(0 + 8400-3600)
april	5,600 units	(4800+8400-7600)
may	1,800 units	(5,600+8,400-12,200)
april	0 units	(1,800+8,400-10,200)

b.

	inventory financing cost	workinng
march	$480	($20*4800 units*0.5%)
april	$560	($20*5600 units*0.5%)
may	$180	($20*1800 units*0.5%)
june	$0	($20*0 units*0.5%)
total financing cost	$1,220