Question: Antonio Banderos & Scarves makes headwear that is very popular in the fallwinter season. Units sold are anticipated as:
If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory buildup. However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 10,000 items over four months at a level of 2,500 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 $5 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 percent or the monthly rate.)