Question

Monthly Unit Salos March April May 3,450 450 11,900 32,700 Tolal urits 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 decldes to go with level production to avold 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 March April Birg June Ending Inventory units units units 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) Inventory Financing Cost March Jurie lotal financing cost

Answer 1

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answer a)
		i	ii	iii=(ii-i)	iv
	Month	Units Sold	Units produced	Change in inventory	Ending Inventory
	March	3450	8175	4725	4725
	April	7450	8175	725	5450
	May	11900	8175	-3725	1725
	June	9900	8175	-1725	0
	Total	32700	32700
answer b)
	Month	Ending Inventory	Cost per unit	Change in inventory value	Inventory Financing cost
		A	B	C (A*B)	(C*1%)
	March	4725	16	$75,600.00	$756.00
	April	5450	16	$87,200.00	$872.00
	May	1725	16	$27,600.00	$276.00
	June	0	16	$0.00	$0.00
	Total Finance cost				$1,904.00