Managing inventories

Q:  We are having trouble controlling inventories.  Could you help us?

A:  I can understand your confusion, but you have complete control over managing your inventories and new production.  Existing inventories of goods will not be shipped to other areas, but will be sold first before any new production or new shipments are sold (first-in first-out).  New production each quarter is shipped according to the sales office orders that you enter on the decision form.  If sales office orders total more than the available production, you have lost some of that control.  In that case, the order for the sales office in the producing area has an advantage--its orders will be filled first.  Then the balance of production will be prorated to other sales offices in proportion to the amount of available goods to the total sales office orders for those offices.  See FAQ "Inventory policies" for more detail.

It appears that your Year 3, Quarter 2 sales offices totaled 692,000  and your production totaled only 464,000.  The area 1 order was filled in full, and the rest were pro-rated.  There was not a large enough shipment to Sereno to fill all of the orders.

You put Model 2 into production in Quarter 2, and had only a small stock on hand of Model 1 (30,000 units).  These were sold, and the balance of filled orders for model 1 actually received model 2.  The only case where the liquidator could buy up units would have been if you were overstocked with model 1--more than could have been sold in Quarter 2.

When a new model is introduced, any units of the old model which have not been sold by the end of the first quarter of production of the new model are sold to a liquidator. The same liquidator will purchase any remaining inventory in the area if you decide to close your sales office. The liquidator has agreed to buy your old models at a price equal to the book value of inventory. This will be your production cost, or for goods purchased from affiliates, the purchase cost.