Reworked Inc. makes winter hats out of recycled clothing that are very popular in the fall-winter season. Units sold are anticipated as:
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October
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3,000 units
|
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November
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6,000 units
|
|
December
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9,000 units
|
|
January
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8,000 units
|
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Total
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26,000 units
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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, Reworked decides to go with level production to avoid being out of merchandise. They will produce the 26,000 items over four months at a level of 6,500 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. (Assume the beginning inventory for October is 0 units. )
b. If the inventory costs $4 per unit and will be financed at the bank at a cost of 12%, what is the monthly financing cost and the total for the four months?