Question

Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer season. Units sold are anticipated as follows:

March	3,250
April	7,250
May	11,500
June	9,500
Total units	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 build-up. 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.)

Short answer

The ending inventory at the end of March is 4,625 units, April is 5,250 units, May is 1,625 units, and June is 0 units. The total cost of financing is $1,380.

Step-by-step solution

Calculation of ending inventory at the end of each month

Month	Units sold	Units produced	Change in inventory	Ending inventory
March	3,250	7,875	4,625	4,625
April	7,250	7,875	625	5,250
May	11,500	7,875	(3,625)	1,625
June	9,500	7,875	(1,625)	0

Expected sales for next year

Month	Ending inventory	Total cost per unit ($12 per unit)	Inventory financing cost (at 1% per month)
March	4,625	55,500	555
April	5,250	63,000	630
May	1,625	19,500	195
June	0	0	0

The total financing cost is $1,380.