Question

Antonio Banderos & Scarves makes headwear that is very popular in the fall-winter season. Units sold are anticipated as follows: October November December January Monthly Unit Sales 1,950 2,950 5,900 4,900 15,700 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. However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 15,700 items over four months at a level of 3,925 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. Ending Inventory units units October November December January units units

Answer 1

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a) It is given in the question that Antonio is doing level production at a volume of 3925 units per month irrespective of sales. This results in building of inventory as follows, (In Units) Ending Balance Month Opening Balance Production Sales 3925 3925 October November December January 0 1975 2950 975 1950 2950 5900 4900 1975 2950 975 3925 3925 0 Total 15700 15700 Note: It is assumed that there is no opening inventory because of the antonio followed seasonal production until september end. b) If amount is borrowed at month beginning as investment for production, Finance cost is as follows Month Ending Balance(In Inventory Value(No.of Finance cost @ 12% Units) Units x $8) p.a October November December January Total 1975 2950 975 0 $15,800 $23,600 $7,800 $0 $47,200 $158 $236 $78 $0 $472 Else we can take the Average inventory for finance cost then finance cost is as follows Month Opening Balance(In Units) Ending Balance(In Units) Average Inventory (In Units) Inventory Value Finance cost October 0 1975 988 $79 November 1975 2950 2463 December 2950 975 1963 $7,900 $19,700 $15,700 $3,900 $47,200 $197 $157 $39 $472 975 0 488 January Total