Question - Mintzberg's Clothiers sells scarves that are very popular in the fall-winter season. Units sold are anticipated as:
October 2,000
November 4,000
December 8,000
January 6,000
20,000 units
If seasonal production is used, it is assumed that inventory buildup 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 20,000 units over 4 months at a level of 5,000 per month.
a. What is the ending inventory at the end of each month? Compare the units produced to the units sold and keep a running total.
b. If the inventory costs $7 per unit and will be financed at the bank at a cost of 8 percent, what is the monthly financing cost and the total for the four months?