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	3,850
April	7,850
May	12,700
June	10,700
	35,100	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 35,100 units over four months at a level of 8,775 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.

b. If the inventory costs $12 per unit and will be financed at the bank at a cost of 12 percent, what is the monthly financing cost and the total for the four months? (Use 1.0 percent as the monthly rate.)
  

Answer 1

Answer to Part a. Calculation of Ending Inventory: Units Sold March 3850 April 7850 |May 12700 June 10700 Change in Inventory 4925 Units Produced 8775 8775 8775 Ending Inventory 4925 5850 1925 925 T -3925 -1925 8775 0 Answer to Part b. Calculation of Financing Cost: March April |May June Ending Inventory 4925 5850 1925 Total Cost @ $12 per Unit 59100 70200 23100 Inventory Financing Cost @ 1% per month 591 702 231 0 0 Total Financing Cost 1524