Question

Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer season. Units sold are anticipated as follows:

Monthly Unit Sales
March	3,400
April	7,400
May	11,800
June	9,800
	32,400	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.

  
The production manager thinks the preceding assumption is too optimistic and decides to go with level production to avoid being out of merchandise. He will produce the 32,400 units over four months at a level of 8,100 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 $14 per unit and will be financed at the bank at a cost of 6 percent, what is the monthly financing cost and the total for the four months? (Use .5 percent as the monthly rate.)

Answer 1

a) If production 8100 units per month then ending investory per month

a	b	c	d	(b+c-d)
Month	Opening inventory	Production	Sales	Ending inventorty
March	0	8100	3400	4700
April	4700	8100	7400	5400
May	5400	8100	11800	1700
June	1700	8100	9800	0

b) Calculation of the monthly fianace cost and total value for four months :-

Month	Ending inventory	Inventort cost@14 per unit	Finance cost @0.5% per month
March	4700	65800	329
April	5400	75600	378
May	1700	23800	119
June	0	0	0
Total finance cost	826