Question: Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer season. A projection of units to be sold is as follows:
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 above assumption is too optimistic and decides to go with level production to avoid being out of merchandise. He will produce the 30,000 units over four months at a level of 7,500 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 $20 per unit and will be financed at the bank at a cost of 6 percent, what is the monthly financing cost and the total for the four months? (Use .5 percent as the monthly rate.)