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