Question

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

March	3,250
April	7,250
May	11,500
June	9,500

Total units are 31,500

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 levels of production to avoid being out of merchandise. He will produce the 31,500 units over 4 months at a level of 7,875 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 $12/unit and will be financed at the bank at a cost of 12%, what is the monthly financing cost and the total for the four months? (use .01 as the monthly rate).

Answer 1

a).

Particulars	March	April	May	June	Total
Unit Sales	3250	7250	11500	9500	31500
Units Produced	7875	7875	7875	7875	31500
Untis Sales to Units Produced	-4625	-625	3625	1625	0
Beginning Inventory	0	4625	5250	1625
Ending Inventory	4625	5250	1625	0

b).

Particulars	March	April	May	June	Total
Unit Sales	3250	7250	11500	9500	31500
Units Produced	7875	7875	7875	7875	31500
Untis Sales to Units Produced	-4625	-625	3625	1625	0
Beginning Inventory	0	4625	5250	1625
Ending Inventory	4625	5250	1625	0
Value of Inventory = Units *12	$ 55,500.00	$ 63,000.00	$ 19,500.00	$           -
Monthly Financing Cost= Value of Inventory * .01	$        555.00	$        630.00	$        195.00	$           -	$ 1,380.00