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
