Problem: Running Inventory
Ramsey's Green Acres sells custom made horse blankets. Fall & winter are strong months for blanket sales.
Each blanket is considered a unit. Units sold are anticipated to be:
# of
Month Units
October 200
November 400
December 800
January 600
2000 Total units
If season production is used, it is anticipated that inventory build up will directly match sales for each month and there will be no inventory build up.
The production manager thinks the above assumption is too optimistic and decides to go with level production to avoid being out of merchandise. He will produce the 2000 units over 4 months and a level of 500 per month.
A. What is the ending inventory at the end of each month? Compare the units produced to the units sold and and keep a running total.
B. If the inventory cost $70 per unit and will be financed at the bank at a rate of 8%, what is the monthly finance cost and the total for the 4 months?
C. If the blankets are sold for $200 each what is Ramsey's Green Acres profit each month after financing costs and expenses (assume $30 total expenses each blanket)?