Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer seasons. Units sold are anticipated as follows:
March……………………………………………… 3,250
April……………………………………………….. 7,250
May…………………………………………………. 11,500
June…………………………………………………. 9,500
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 level production to avoid being out of merchandise. He will produce the 31,500 units over four 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 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 0.01 as the monthly rate.)
6-3. Solution:
Part a:
Bambino Sporting Goods
| a. | Units Sold | Units Produced | Change in Inventory | Ending Inventory |
| March | 3,250 | x,xxx | +x,xxx | x,xxx |
| April | 7,250 | x,xxx | +xxx | x,xxx |
| May | 11,500 | x,xxx | -x,xxx | x,xxx |
| June | 9,500 | x,xxx | -x,xxx | x |
6-3. (Continued) Part b:
| b. | Ending Inventory | Total Cost ($12 per unit) | Inventory Financing Cost (at 1% per month) |
| March | x, xxx | xx,xxx | xx, xxx |
| April | x, xxx | xx, xxx | $ xxx |
| May | x, xxx | xx, xxx | $ xxx |
| June | x | x | x |
| Total Financing Cost = | $1,380 | ||
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