Chapter 6, Problem 6.25E

Revenues, production, and purchases budgets. The Yucatan Co. in Mexico has a division that manufactures bicycles. Its budgeted sales for Model XG in 2018 are 95,000 units. Yucatan’s target ending inventory is 7,000 units, and its beginning inventory is 11,000 units. The company’s budgeted selling price to its distributors and dealers is 3,500 pesos per bicycle.

Yucatan buys all its wheels from an outside supplier. No defective wheels are accepted. Yucatan’s needs for extra wheels for replacement parts are ordered by a separate division of the company. The company’s target ending inventory is 14,000 wheels, and its beginning inventory is 16,000 wheels. The budgeted purchase price is 400 pesos per wheel.

1. 1. Compute the budgeted revenues in pesos.

Required

1. 2. Compute the number of bicycles that Yucatan should produce.
2. 3. Compute the budgeted purchases of wheels in units and in pesos.
3. 4. What actions can Yucatan’s managers take to reduce budgeted purchasing costs of wheels assuming the same budgeted sales for Model XG?