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A company makes and sells a seasonal products . based on a sales forecast of 2000,...

A company makes and sells a seasonal products . based on a sales forecast of 2000, 3000, and 5000 per quarter , calculate a level production plan , quarterly ending inventory , and average quarterly inventory . if inventory carrying cost are 3 $ per unit per quarter , what is the annual cost of carrying inventory ? opening and ending inventories are zero .

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Answer #1

1. Calculation of Production Plan

Quarter 1 Quarter 2 Quarter 3 Quarter 4
Opening Inventory(given as zero) 0 0 0 0
Production 2000 3000 5000 0
Closing Inventory(given as zero) 0 0 0 0
Sales per quarter(Given) 2000 3000 5000 0

2. Quarterly Ending Inventory is 2000 3000 5000 0

3. Average Quarterly Inventory is (2000+3000+5000)/4 = 2500

4. Calculation of Annual Cost of Carrying Inventory   

Quarter 1 Quarter 2 Quarter 3 Quarter 4
Inventory during the quarter 2000 3000 5000 0
Inventory cost per unit per quarter(given) 3$ 3$ 3$ 3$
Cost (Sales x Inventory cost) $6000 $9000 $1500 0

Therefore Total annual cost of carrying inventory is $6000+$9000+$15000 = $30000

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