XanderManufacturing Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use

40 skeins of wool at a cost of

$ 5 per skein and0.7 gallons of dye at a cost of $ 9 per gallon. All other materials are indirect. At the beginning of the year Xander has an inventory of 464 000 skeins of wool at a cost of

comma 1,113,600 and

4,300 gallons of dye at a cost of $26,230. Target ending inventory of wool and dye is zero.

Xander uses the FIFO inventory cost flow method.

There is no direct manufacturing labor cost for dyeing.

Xander budgets 60 direct manufacturing labor-hours to weave a rug at a budgeted rate of $ 16

per hour. It budgets 0.3 machine-hours to dye each skein in the dyeing process

Xander

blue rugs are very popular and demand is high, but because of capacity constraints the firm will produce only

230,000

blue rugs per year. The budgeted selling price is

$ 2,300

each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero.

Xander makes rugs by hand, but uses a machine to dye the wool. Thus, overhead costs are accumulated in two cost

poolslong dashone 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 onmachine-hours (MH)

Dyeing

Weaving

(based on 2,760,000 MH)

(based on 13,800,000 DMLH)

Variable costs

Indirect materials

$0

$15,550,000

Maintenance

6,590,000

5,570,000

Utilities

7,580,000

1,255,000

Fixed costs

Indirect labor

380,000

1,865,000

Depreciation

2,226,000

285,000

Other

750,000

5,835,000

Total budgeted costs

$17,526,000

$30,360,000

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 revenues budget for blue rugs for the year, assuming Xander sells (a) 230,000 or (b) 200,000 blue rugs (that is, at two different sales levels).
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.
7.	What actions might you take as a manager to improve profitability if sales drop to 200,000 blue rugs?
8.	How might top management at Xander use the budget developed in requirements1-6 to better manage the company?

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	9200,000	skeins	161,000	gal

Cost Budget
Available from beginning direct materials inventory
(under a FIFO cost-flow assumption)
Wool
Dye
To be purchased this period
Wool
Dye
Direct materials to be used this period

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.)

	/		=	Budgeted manufacturing overhead rate
	/		=

Begin by determining the formula, then calculate the budgeted overhead allocation rate for dyeing. (Round your answer to the nearest cent.)

	/		=	Budgeted manufacturing overhead rate
	/		=

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	=	unit cost
Wool		x		=
Dye		x		=
Direct manufacturing labor		x		=
Dyeing overhead		x		=
Weaving overhead		x		=
Total

Requirement 4. Prepare a revenue budget for blue rugs for the year, assuming

XanderXander

sells (a)

230 comma 000230,000

or (b)

200 comma 000200,000

blue rugs (that is, at two different sales levels).

Revenue Budget
	Units	Selling price	Total revenues
(a) Blue rugs	230,000
(b) Blue rugs	200,000

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

230 comma 000230,000

rugs, and then (b) complete a cost of goods sold budget assuming sales of

200 comma 000200,000

rugs.

Cost of Goods Sold Budget
	(a) 230,000	units
Beginning finished goods inventory
Direct materials used
Direct manufacturing labor
Manufacturing overhead
Cost of goods manufactured
Cost of goods available for sale
Deduct ending finished goods inventory
Cost of goods sold

(b) 200,000	units

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

230,000

rugs, and then (b) finding the budgeted gross margin assuming sales of

200,000

rugs.

Budgeted Income Statement
	(a) 230,000 units
Revenues
Cost of goods sold
Gross margin

(b) 200,000 units

Requirement 7. What actions might you take as a manager to improve profitability if sales drop to

200 comma 000200,000

blue rugs?If sales drop to

200 comma 000200,000

blue rugs,

XanderXander

should look to

increase

reduce

fixed costs and produce

less

more

to reduce variable costs and inventory costs.Requirement 8. How might top management at

XanderXander

use the budget developed in requirements 1-6 to better manage the company? (Select all that apply.)