Question

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

Monthly Unit Sales
October	1,850
November	2,850
December	5,700
January	4,700
	15,100	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 15,100 items over four months at a level of 3,775 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 $8 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) Calculation of the ending inventory If units produced level is 3775 units :-

Month	Production units	Sales units	Change in inventory	Ending / closing inventory
october	3775	1850	1925	1925
november	3775	2850	925	2850 (1925+925)
december	3775	5700	-1925	925 (2850 - 1925)
january	3775	4700	-925	0   (925-925)
Total	15100	15100	0

b)Monthly Finance cost :-

Month	Ending inventory	Cost of holding inventory@8 per unit	Finance cost @1% per month
october	1925	15400	154
november	2850	22800	228
december	925	7400	74
january	0	0	0
Total			456