Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of Financial Management. New York, NY: McGraw-Hill Education. 16th edition.Chapter 6 - Problem #5Antonio Banderos & Scarves makes headwear that is very popular in the fall winter season. Units sold are anticipated as follows:October 1,250November 2,250December 4,500January 3,500TOTAL:   11,500 unitsIf 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 costs and the total for the four months?  (Use 1 percent or the monthly rate).Thank you in advance!

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Asked Jun 4, 2019
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Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of Financial Management. New York, NY: McGraw-Hill Education. 16th edition.

Chapter 6 - Problem #5

Antonio Banderos & Scarves makes headwear that is very popular in the fall winter season. Units sold are anticipated as follows:

October 1,250

November 2,250

December 4,500

January 3,500

TOTAL:   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 costs and the total for the four months?  (Use 1 percent or the monthly rate).

Thank you in advance!

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Expert Answer

Step 1

Unit sales per month can be compared to production per month and the difference will give us the change in Inventory. Following table will help you understand how to deduce Ending Inventory.

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Step 2

Finance costs per month can be c...

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