Question

Wynn, Inc. manufactures beanies. The budgeted units to be produced and sold are below: Expected Production Expected Sales August 3,500 2,900 September 2,800 3,900 It takes 18 yards of yarn to produce a beanie. The company's policy is to maintain yarn at the end of each month equal to 5% of next month's production needs and to maintain a finished goods inventory at the end of each month equal to 20% of next month's anticipated production needs. The cost of yarn is $0.20 a yard. At August 1, 3,150 yards of yarn were on hand. Compute the budgeted cost of purchases.

Answer 1

Answer:

Hence, the budgeted cost of purchases is 12,474 yards

Explanation:

To compute the budgeted cost of purchase, we need to require to do calculations which are shown below:

1. First, we have to compute the purchase amount

= Required production in august + ending inventory - beginning inventory

where,

required production equals to

= expected production × number of yards

= 3,500 units × 18

= 63,000 yards

The ending inventory is 5% of next month production which equals to

= September expected production × number of yarns × rate

= 2,800 units × 18 yards × 5%

= 2,520 yards

And, the beginning inventory is 3,150 yards

Now put these values to the above formula

So, the purchase amount would be equal to

= 63,000 + 2,520 - 3,150

= 62,370 yards

And the cost of a yard is $0.20

So, the budgeted cost of purchase equals to

= Purchase amount × cost of yard

=  62,370 × $0.20

= 12,474 yards

Hence, the budgeted cost of purchases is 12,474 yards