Question

Antonio Banderos & Scarves makes headwear that is very popular in the fall-winter season. Units sold are anticipated as:

Monthly Unit Sales
October	1,150
November	2,150
December	4,300
January	3,300
	10,900	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 10,900 items over four months at a level of 2,725 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

October _______units

November______units

December_______units

January__________units

  

b. If the inventory costs $4 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 percent as the monthly rate.)

Inventory Financing Cost

October___________

Nov._______

Dec_________

Jan_____________

Total financing cost___________

Answer 1

a).

	Units Sold	Units Produced	Change in Inventory	Ending Inventory
October	1,150	2,725	+1,575	1,575
November	2,150	2,725	+ 575	2,150
December	4,300	2,725	-1,575	575
January	3,300	2,725	- 575	0

b).

	Ending Inventory	Total Cost ($4 per unit)	Financing Cost (@1% per month)
October	1,575	$6,300	$ 63
November	2,150	$8,600	$ 86
December	575	$2,300	$ 23
January	0	$ 0	$ 0
	Total Financing Cost		$172