Question

Given that beginning inventory level is 960 units, total forecasted demand over the next 12 months is 13,400 units, and desired ending inventory level at the end of the 12^th month is 1,000 units, what is the cost of production per month if a level strategy is used  and per unit cost of production is $32? (round to the nearest integer)

Answer 1

Opening Inventory is 960 units
Total forecasted demand over next 12 months is 13400 units
Closing inventory after 12 month is 1000 units
Thus Purchase of inventory in 12 months will be
Total demand + Closing inventory - Opening Inventory
13400+1000-960
13440 units
Per unit cost of production is $32
Total cost of production= Per unit cost * Total purchase units
32*13440
$430080
Cost of production per month if level startegy is used then = Total cost of production / No of months
430080/12
$35840
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