Question

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

Monthly Unit Sales

October 1,350

November 2,350

December 4,700

January 3,700

12,100 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.

However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 12,100 items over four months at a level of 3,025 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 $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.)

Answer 1

a.

	Monthly Unit Sales	Monthly Unit Produced	Ending Inventory Balance
October	1350	3025	1675
November	2350	3025	2350
december	4700	3025	675
January	3700	3025	0

b.

	Monthly Unit Produced	Inventory Cost	Financing Cost
October	1675	6700	67
November	2350	9400	94
december	675	2700	27
January	0	0	0
Total			188

Inventory Cost Formula = 1675*4 = $6700 October
= 2350*4 =$9400    November
      = 675*4 = $2700    December

Financing Cost = Inventory Cost*0.01
      = 6700*0.01 = $67 October

Refer to the excel for total and the numbers.

answered by: anonymous