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	3,450
April	7,450
May	11,900
June	9,900
	32,700	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 32,700 units over four months at a level of 8,175 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
MARCH
APRIL
MAY
JUNE

b. If the inventory costs $16 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 1.0 percent as the monthly rate.)

	INV FINANCING COSTS
MARCH
APRIL
MAY
JUNE
TOTAL

Answer 1

Answer :

(a.) Calculation of Ending Inventory :

Ending Inventory = Opening Stock + Units Produced - Units Sold

Month	Working	Ending Inventory
March	0 + 8175 - 3450	4725
April	4725 + 8175 - 7450	5450
May	5450 + 8175 - 11900	1725
June	1725 + 8175 - 9900	0

(b.) Calculation of Financing Cost

Financing Cost = Ending Inventory * Inventory Cost * Monthly Financing Cost

Month	Working	Financing Cost
March	4725 * 16 * 1%	756
April	5450 * 16 * 1%	872
May	1725 * 16 * 1%	276
June	0	0