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Question - Madonna's Clothiers sells scarves that are very popular in the fall-winter season. Units sold are anticipated as follows:
October 1,550
November 2,550
December 5,100
January 4,100
13,300
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 13,300 items at a level of 3,325 per month.
a. What is the ending inventory at the end of each month? Compare the units sold to the units produced and complete the table.
b. If the inventory costs $4 per unit and will be financed through the bank at 12 percent per annum, what is the monthly financing cost and the total for the four months?
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