Madonna’s Clothiers sells scarves that are very popular in the fall-winter seaso

Question

Madonna’s Clothiers sells scarves that are very popular in the fall-winter season. Units sold are anticipated as follows:

   

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 10,900 items at a level of 2,725 per month.

     

please show your work.

  October 1,150   November 2,150   December   4,300   January 3,300 10,900 a. What is the ending inventory at the end of each month? Compare the units sold to the units produced and complete the table below. (Do not leave any empty spaces; input a 0 wherever it is required.) Madonna's Clothiers Units Produced Change in inventory inventory Units sold Ending October November December January 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? (Use 1 percent or the monthly rate.) (Do not leave any empty spaces; input a 0 wherever it is required.) Inventory financing cost October November December January Total financing cost

Explanation / Answer

Sol a: Madonna's Clothier Units Sold (1) Units Produced (2) Change In Inventory (2-1) Ending Inventory October 1,150 2,725 1,575 1,575 November 2,150 2,725 575 2,150 December 4,300 2,725 -1,575 575 January 3,300 2,725 -575 0 Explanation: Change in Inventory = Units Produced-Units Sold Ending Inventory = Cumulative inventory Sol b: Ending Inventory (x) Total Cost per Unit ($4 per unit)    (4*x) Inventory Financing Cost (1% monthly) (0.01*4*x) October 1,575 6,300 63 November 2,150 8,600 86 December 575 2,300 23 January 0 0 0 Total Financing Cost = $172

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