Antonio Banderos & Scarves makes headwear that is very popular in the fall/winter season. Units sold are anticipated as:
October .......... 1,250
November ......... 2,250
December ......... 4,500
January .......... 3,500
11,500 units
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 11,500 items over four months at a level of 2,875 per month.
a. What is the ending inventory at the end of each month? Compare the units sales to the units produced and keep a running total.
b. If the inventory costs $8 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.)