Question 13 from page 443 with the answer. Think about how other industries experience similar issues with inventory control in seasonal selling cycles such as retail. It is estimated that 35 to 40 percent of retail sales happen in the 6 weeks from Thanksgiving weekend in November to Christmas Day in December. With this in mind, choose a retail company of your choice in the U.S. or abroad and discuss whether the company has been doing a good job of managing its inventory and succeeding. What measurements are you using for success.

Describe what happens to a firms current asset accounts if the firm has seasonal sales and they use (a) level production, or (b) seasonal production.

A. Under a level production plan, the same amount of raw materials are purchased and the same amount of finished product is manufactured every month. Inventory builds up in anticipation of higher seasonal sales while cash and accounts receivable are quite low. When the selling season begins, inventories fall and receivables rise. After a time, inventories are nearly exhausted, and the firm is collecting cash from its customers. The changing composition of current assets for a firm with a seasonal sales pattern is illustrated in Figure 15.5.

B. Under seasonal production, raw material purchases will rise or fall in anticipation of higher or lower sales. Such a strategy can help minimize the effect of seasonal sales on inventory; goods are manufactured shortly before sale. Receivables will rise during the peak selling season but will fall thereafter as cash is collected.