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Bambino Sporting Goods makes exceptional gloves that sell well in the spring and early summer season

Finance

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Bambino Sporting Goods makes exceptional gloves that sell well in the spring and early summer season. A projection of units sold is as follows: 

 

   March 3,100   

April 7,100

  May 11,200 

 June 9,200

Total    30,600  

 

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 30,600 items at a level of 7,650 per month.

 

a. He's interested to know how much extra inventory Bambino will be holding if they go with level production. Compare the units sold to the units produced to calculate the change in inventory by month. Keep track of the cumulative impact of these invetory changes. Complete the table below.. (Do not leave any empty spaces; input a 0 wherever it is required. Enter all values as positive value.)

 

Bambino Sporting Goods Units

sold Units Change in Cumulative

Units Produced   inventory change

  March       ______ _________ ________ ________   

  April       ______ _________ ________ ________   

  May     ______ _________ ________ ________   

 June           ______ _________ ________ ________   

 

b. Any increase in current assets (like inventory) will be financed through a line of credit Bambino has with a local bank. The Corporate Finance Manager is interested to know how much extra interest he will pay to finance the increase in inventory. The local bank charges 6 percent interest per year for the line of credit. The interest is caluated montly (so take the 6 percent per year and divide by 12) and depends on how much of the line of credit is being used. The invetory has a cost of $12 per unit so the change in the monthly balance outstanding on the line of credit is the cumulative change in invetory times the cost per unit. Complete the table below detailing the monthly financing cost and the total financing cost for the four months. (Do not leave any empty spaces; input a 0 wherever it is required.)  

 

  Financing cost 

 March $___________    

 April  ____________

 May     ____________

June      ____________

 

Total financing cost $_____________   

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