Illawarra Ltd manufactures blue rugs, using wool and dye as direct materials. One blue rug is budgeted to use 36 skeins of wool at a cost of $3 per skein and 0.8 litres of dye at a cost of $8 per litre. All other materials are indirect. At the beginning of the year Illawarra has an inventory of 500 000 skeins of wool at a cost of $1,050,000 and 5,000 litres of dye at a cost of $29,680. Target ending inventory of wool and dye is zero. Illawarra uses the First-In-First-Out*) (FIFO) inventory cost flow method. Illawarras blue rugs are very popular and demand is high but, because of capacity constraints, the firm will produce only 200 000 blue rugs per year. The budgeted selling price is $2500 each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero. Illawarra 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 product based on direct manufacturing labour-hours (DMLH). Dyeing overhead is allocated to product based on machine-hours (MH). There is no direct manufacturing labour cost for dyeing. Illawarra budgets 65 direct manufacturing labour-hours to weave a rug at a budgeted rate of $13 per hour. It budgets 0.2 machine-hours to dye each skein in the dyeing process. The following table presents the budgeted overhead costs for the dyeing and weaving cost pools

Illawarra Ltd manufactures blue rugs, using wool and dye as direct materials. One blue rug is budgeted to use 36 skeins of wool at a cost of $3 per skein and 0.8 litres of dye at a cost of $8 per litre. All other materials are indirect. At the beginning of the year Illawarra has an inventory of 500 000 skeins of wool at a cost of $1,050,000 and 5,000 litres of dye at a cost of $29,680. Target ending inventory of wool and dye is zero. Illawarra uses the First-In-First-Out" (FIFO) inventory cost flow method. Illawarra's blue rugs are very popular and demand is high but, because of capacity constraints, the firm will produce only 200 000 blue rugs per year. The budgeted selling price is $2500 each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero. Illawarra makes rugs by hand but uses a machine to dye the wool. Thus overhead costs are accumulated in two cost pools-one for weaving and the other for dyeing. Weaving overhead is allocated to product based on direct manufacturing labour-hours (DMLH). Dyeing overhead is allocated to product based on machine-hours (MH). There is no direct manufacturing labour cost for dyeing. Illawarra budgets 65 direct manufacturing labour-hours to weave a ruig at a budgeted rate of $13 per hour. It budgets 0.2 machine-hours to dye each skein in the dyeing process. The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: Dyeing (based on Weaving (based on 1,440,000 MH) 13,000,000 DLMH) Variable costs: Indirect materials $0 $15,400,000 Maintenance $6,560,000 $7,580,000 Utilities $ 7,550,000 $3,500,000 Fixed costs: Indirect labour $350,000 $1,700,000 Depreciation $2,100,000 $550,000 Other $750,000 $5,816,000 Total Budgeted Costs $17,310,000 $34,546,000 *) FIFO means firstly In or available firstly used. Required (show your working): 1. Prepare a direct materials 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 sales budget for blue rugs for the year, assuming Illawarra sells 200 000 5. Calculate the budgeted gross margin for blue rugs. (20 marks) (20 marks) (20 marks) (10 marks) (30 marks)