Two Yards of a Fabric Are Required for Each Blouse

question 63

Essay

Two yards of a fabric are required for each blouse produced by Northern Shirt Corporation. The cost of the fabric is $4 per yard. Budgeted production of blouses is given below for the fourth quarter and the first month of the following quarter. To prevent against stock outs of the fabric, the company maintains an ending inventory each month equal to 10% of the next month's production needs. The beginning inventory of the fabric in October will be 3,600 yards.
Required:
Prepare a direct materials budget for the fabric, by month and in total for the fourth quarter. Be sure to include both the quantity to be purchased and its cost for each month.

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Definitions:

Systematic Risk

The portion of investment risk that is inherent in the entire market or market segment, also known as market risk, which cannot be eliminated through diversification.

Market Risk

The potential for investors to experience losses due to factors that affect the overall performance of the financial markets.

Diversified Away

Refers to the reduction of risk in a portfolio by investing in a variety of assets, thus minimizing the impact of any single investment's performance.

Firm-specific Risk

The risk associated with an individual company, which can be mitigated through diversification.