Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

6BP

Expert-verified
Foundations Of Financial Management
Found in: Page 185
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

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.)

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.

See the step by step solution

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.

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.