Question
1. Prepare a direct material usage budget in both units and dollars. 2. Calculate the budgeted overhead allocation rates for weaving and dyeing 3. Calculate
1. Prepare a direct material usage budget in both units and dollars.
2. Calculate the budgeted overhead allocation rates for weaving and dyeing
3. Calculate the budgeted unit cost of a blue rug for the year.
4. Prepare a revenue budget for blue rugs for the year,
5. Calculate the budgeted cost of goods sold for blue rugs under each sales assumption.
6. Find the budgeted gross margin for blue rugs under each sales assumption.
Manufacturing Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use |
38 |
skeins of wool at a cost of |
$4 |
per skein and |
0.7 |
gallons of dye at a cost of |
$7 |
per gallon. All other materials are indirect. At the beginning of the year |
Xavier |
has an inventory of |
450,000 |
skeins of wool at a cost of |
$855,000 |
and |
3,700 |
gallons of dye at a cost of |
$21,830.00 |
Target ending inventory of wool and dye is zero. |
Xavier |
uses the FIFO inventory cost flow method. |
More info
Xavier
blue rugs are very popular and demand is high, but because of capacity constraints the firm will produce only
225,000
blue rugs per year. The budgeted selling price is
$2,100
each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero.
Xavier
makes rugs by hand, but uses a machine to dye the wool. Thus, overhead costs are accumulated in two cost
poolsone
for weaving and the other for dyeing. Weaving overhead is allocated to products based on direct manufacturing labor-hours (DMLH). Dyeing overhead is allocated to products based on machine-hours (MH).
Data table
The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: | ||
| Dyeing | Weaving |
| (based on 2,565,000 MH) | (based on 11,700,000 DMLH) |
Variable costs |
|
|
Indirect materials | $0 | $15,420,000 |
Maintenance | 6,560,000 | 5,525,000 |
Utilities | 7,565,000 | 2,810,000 |
Fixed costs |
|
|
Indirect labor | 362,000 | 1,730,000 |
Depreciation | 2,227,000 | 270,000 |
Other | 728,000 | 5,835,000 |
Total budgeted costs | $17,442,000 | $31,590,000 |
There is no direct manufacturing labor cost for dyeing.Xavier budgets 52 direct manufacturing labor-hours to weave a rug at a budgeted rate of $14 per hour. It budgets 0.3machine-hours to dye each skein in the dyeing process
Requirement 1. Prepare a direct material usage budget in both units and dollars. | |||||
Begin with the physical units portion, then prepare the cost budget portion of the direct material usage budget. | |||||
Direct Material Usage Budget in Quantity and Dollars | |||||
Material | |||||
Wool | Dye | Total | |||
Physical Units Budget | |||||
Direct materials required for | |||||
Blue rugs | 8,550,000 | skeins | 157,500 | gal | |
Part 2 | |||||
Cost Budget | |||||
Available from beginning direct materials inventory | |||||
(under a FIFO cost-flow assumption) | |||||
Wool | $855,000 | ||||
Dye | $21,830 | ||||
To be purchased this period | |||||
Wool | 32,400,000 | ||||
Dye | 1,076,600 | ||||
Direct materials to be used this period | $33,255,000 | $1,098,430 | $34,353,430 | ||
Part 3 | |||||
Requirement 2. Calculate the budgeted overhead allocation rates for weaving and dyeing. | |||||
Begin by determining the formula, then calculate the budgeted overhead allocation rate for weaving. (Round your answer to the nearest cent.) | |||||
Total budgeted overhead costs | / | Direct manuf. labor hours | #ERROR! | Budgeted manufacturing overhead rate | |
$31,590,000 | / | 11,700,000 | #ERROR! | $2.70 | |
Part 4 | |||||
Begin by determining the formula, then calculate the budgeted overhead allocation rate for dyeing. (Round your answer to the nearest cent.) | |||||
Total budgeted overhead costs | / | Machine hours | #ERROR! | Budgeted manufacturing overhead rate | |
$17,442,000 | / | 2,565,000 | #ERROR! | $6.80 | |
Part 5 | |||||
Requirement 3. Calculate the budgeted unit cost of a blue rug for the year. (Round your answers to two decimal places.) | |||||
Cost per | Input per | Budgeted | |||
unit of input | x | unit of output | #ERROR! | unit cost | |
Wool | $4 | x | 38 | #ERROR! | $152.00 |
Dye | 7 | x | 0.7 | #ERROR! | 4.9 |
Direct manufacturing labor | 14 | x | 52 | #ERROR! | 728 |
Dyeing overhead | 6.8 | x | 11.4 | #ERROR! | 77.52 |
Weaving overhead | 2.7 | x | 52 | #ERROR! | 140.4 |
Total | $1,102.82 | ||||
Part 6 | |||||
Requirement 4. Prepare a revenue budget for blue rugs for the year, assuming | |||||
Xavier | |||||
sells (a) | |||||
225,000 | |||||
or (b) | |||||
210,000 | |||||
blue rugs (that is, at two different sales levels). | |||||
Revenue Budget | |||||
Units | Selling price | Total revenues | |||
(a) Blue rugs | 225,000 | $2,100 | $472,500,000 | ||
(b) Blue rugs | 210,000 | 2,100 | 441,000,000 | ||
Part 7 | |||||
Requirement 5. Calculate the budgeted cost of goods sold for blue rugs under each sales assumption. (For amounts with a $0 balance, make sure to enter "0" in the appropriate cell.) | |||||
Begin by (a) completing the cost of goods sold budget assuming sales of | |||||
225,000 | |||||
rugs, and then (b) complete a cost of goods sold budget assuming sales of | |||||
210,000 | |||||
rugs. | |||||
Cost of Goods Sold Budget | |||||
(a) 225,000 | units | ||||
Beginning finished goods inventory | $0 | ||||
Direct materials used | $34,353,430 | ||||
Direct manufacturing labor | 163,800,000 | ||||
Manufacturing overhead | 49,032,000 | ||||
Cost of goods manufactured | 247,185,430 | ||||
Cost of goods available for sale | 247,185,430 | ||||
Deduct ending finished goods inventory | 0 | ||||
Cost of goods sold | $247,185,430 | ||||
(b) 210,000 | units | ||||
$0 | |||||
$34,353,430 | |||||
163,800,000 | |||||
49,032,000 | |||||
247,185,430 | |||||
247,185,430 | |||||
16,542,300 | |||||
$230,643,130 | |||||
Part 8 | |||||
Requirement 6. Find the budgeted gross margin for blue rugs under each sales assumption. | |||||
Begin by (a) finding the budgeted gross margin assuming sales of | |||||
225,000 | |||||
rugs, and then (b) finding the budgeted gross margin assuming sales of | |||||
210,000 | |||||
rugs. | |||||
Budgeted Income Statement | |||||
(a) 225,000 units | |||||
Revenues | $472,500,000 | ||||
Cost of goods sold | 247,185,430 | ||||
Gross margin | 225,314,570 | ||||
(b) 210,000 units | |||||
$441,000,000 | |||||
230,643,130 | |||||
210,356,870 | |||||
Part 9 | |||||
Requirement 7. What actions might you take as a manager to improve profitability if sales drop to | |||||
210,000 | |||||
blue rugs? | |||||
If sales drop to | |||||
210,000 | |||||
blue rugs, | |||||
Xavier | |||||
should look to | |||||
reduce | |||||
fixed costs and produce | |||||
less | |||||
to reduce variable costs and inventory costs. | |||||
Part 10 | |||||
Requirement 8. How might top management at | |||||
Xavier | |||||
use the budget developed in requirements 1-6 to better manage the company? (Select all that apply.) | |||||
Look for ways to increase sales and improve quality, efficiency and input prices. | |||||
Coordinate and communicate across different parts of the organization. | |||||
Create a framework for judging performance. |
Requirement 1. Prepare a direct material usage budget in both units and dollars. | |||||
Begin with the physical units portion, then prepare the cost budget portion of the direct material usage budget. | |||||
Direct Material Usage Budget in Quantity and Dollars | |||||
Material | |||||
Wool | Dye | Total | |||
Physical Units Budget | |||||
Direct materials required for | |||||
Blue rugs | 8,550,000 | skeins | 157,500 | gal | |
Part 2 | |||||
Cost Budget | |||||
Available from beginning direct materials inventory | |||||
(under a FIFO cost-flow assumption) | |||||
Wool | $855,000 | ||||
Dye | $21,830 | ||||
To be purchased this period | |||||
Wool | 32,400,000 | ||||
Dye | 1,076,600 | ||||
Direct materials to be used this period | $33,255,000 | $1,098,430 | $34,353,430 | ||
Part 3 | |||||
Requirement 2. Calculate the budgeted overhead allocation rates for weaving and dyeing. | |||||
Begin by determining the formula, then calculate the budgeted overhead allocation rate for weaving. (Round your answer to the nearest cent.) | |||||
Total budgeted overhead costs | / | Direct manuf. labor hours | #ERROR! | Budgeted manufacturing overhead rate | |
$31,590,000 | / | 11,700,000 | #ERROR! | $2.70 | |
Part 4 | |||||
Begin by determining the formula, then calculate the budgeted overhead allocation rate for dyeing. (Round your answer to the nearest cent.) | |||||
Total budgeted overhead costs | / | Machine hours | #ERROR! | Budgeted manufacturing overhead rate | |
$17,442,000 | / | 2,565,000 | #ERROR! | $6.80 | |
Part 5 | |||||
Requirement 3. Calculate the budgeted unit cost of a blue rug for the year. (Round your answers to two decimal places.) | |||||
Cost per | Input per | Budgeted | |||
unit of input | x | unit of output | #ERROR! | unit cost | |
Wool | $4 | x | 38 | #ERROR! | $152.00 |
Dye | 7 | x | 0.7 | #ERROR! | 4.9 |
Direct manufacturing labor | 14 | x | 52 | #ERROR! | 728 |
Dyeing overhead | 6.8 | x | 11.4 | #ERROR! | 77.52 |
Weaving overhead | 2.7 | x | 52 | #ERROR! | 140.4 |
Total | $1,102.82 | ||||
Part 6 | |||||
Requirement 4. Prepare a revenue budget for blue rugs for the year, assuming | |||||
Xavier | |||||
sells (a) | |||||
225,000 | |||||
or (b) | |||||
210,000 | |||||
blue rugs (that is, at two different sales levels). | |||||
Revenue Budget | |||||
Units | Selling price | Total revenues | |||
(a) Blue rugs | 225,000 | $2,100 | $472,500,000 | ||
(b) Blue rugs | 210,000 | 2,100 | 441,000,000 | ||
Part 7 | |||||
Requirement 5. Calculate the budgeted cost of goods sold for blue rugs under each sales assumption. (For amounts with a $0 balance, make sure to enter "0" in the appropriate cell.) | |||||
Begin by (a) completing the cost of goods sold budget assuming sales of | |||||
225,000 | |||||
rugs, and then (b) complete a cost of goods sold budget assuming sales of | |||||
210,000 | |||||
rugs. | |||||
Cost of Goods Sold Budget | |||||
(a) 225,000 | units | ||||
Beginning finished goods inventory | $0 | ||||
Direct materials used | $34,353,430 | ||||
Direct manufacturing labor | 163,800,000 | ||||
Manufacturing overhead | 49,032,000 | ||||
Cost of goods manufactured | 247,185,430 | ||||
Cost of goods available for sale | 247,185,430 | ||||
Deduct ending finished goods inventory | 0 | ||||
Cost of goods sold | $247,185,430 | ||||
(b) 210,000 | units | ||||
$0 | |||||
$34,353,430 | |||||
163,800,000 | |||||
49,032,000 | |||||
247,185,430 | |||||
247,185,430 | |||||
16,542,300 | |||||
$230,643,130 | |||||
Part 8 | |||||
Requirement 6. Find the budgeted gross margin for blue rugs under each sales assumption. | |||||
Begin by (a) finding the budgeted gross margin assuming sales of | |||||
225,000 | |||||
rugs, and then (b) finding the budgeted gross margin assuming sales of | |||||
210,000 | |||||
rugs. | |||||
Budgeted Income Statement | |||||
(a) 225,000 units | |||||
Revenues | $472,500,000 | ||||
Cost of goods sold | 247,185,430 | ||||
Gross margin | 225,314,570 | ||||
(b) 210,000 units | |||||
$441,000,000 | |||||
230,643,130 | |||||
210,356,870 | |||||
Part 9 | |||||
Requirement 7. What actions might you take as a manager to improve profitability if sales drop to | |||||
210,000 | |||||
blue rugs? | |||||
If sales drop to | |||||
210,000 | |||||
blue rugs, | |||||
Xavier | |||||
should look to | |||||
reduce | |||||
fixed costs and produce | |||||
less | |||||
to reduce variable costs and inventory costs. | |||||
Part 10 | |||||
Requirement 8. How might top management at | |||||
Xavier | |||||
use the budget developed in requirements 1-6 to better manage the company? (Select all that apply.) | |||||
Look for ways to increase sales and improve quality, efficiency and input prices. | |||||
Coordinate and communicate across different parts of the organization. | |||||
Create a framework for judging performance. |
ABOVE IS AN EXAMPLE PLEASE USE THESE NUMBERS
Manufacturing Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use
35
skeins of wool at a cost of
$6
per skein and
0.8
gallons of dye at a cost of
$10
per gallon. All other materials are indirect. At the beginning of the year
Xuereb
has an inventory of
466,000
skeins of wool at a cost of
$1,165,000
and
4,400
gallons of dye at a cost of
$27,280.
Target ending inventory of wool and dye is zero.
Xuereb
uses the FIFO inventory cost flow method.
More info
Xuereb
blue rugs are very popular and demand is high, but because of capacity constraints the firm will produce only
240,000
blue rugs per year. The budgeted selling price is
$2,400
each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero.
Xuereb
makes rugs by hand, but uses a machine to dye the wool. Thus, overhead costs are accumulated in two cost
poolsone
for weaving and the other for dyeing. Weaving overhead is allocated to products based on direct manufacturing labor-hours (DMLH). Dyeing overhead is allocated to products based on machine-hours (MH).
There is no direct manufacturing labor cost for dyeing.
Xuereb
budgets
50
direct manufacturing labor-hours to weave a rug at a budgeted rate of
$17
per hour. It budgets
0.2
machine-hours to dye each skein in the dyeing process.
Data table
The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: | ||
| Dyeing | Weaving |
| (based on 1,680,000 MH) | (based on 12,000,000 DMLH) |
Variable costs |
|
|
Indirect materials | $0 | $15,600,000 |
Maintenance | 6,600,000 | 5,580,000 |
Utilities | 7,590,000 | 4,370,000 |
Fixed costs |
|
|
Indirect labor | 387,000 | 1,920,000 |
Depreciation | 2,216,000 | 290,000 |
Other | 763,000 | 5,840,000 |
Total budgeted costs | $17,556,000 | $33,600,000 |
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