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Xiao Manufacturing Company manufactures blue rugs using wool and dye as direct materials. One rug is budgeted to use 35 skeins of wool at a
Xiao 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, Xiao 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. Xiao uses the FIFO inventory cost flow method. (Click the icon to view the additional information.) It budgets 0.2 machine-hours to dye each skein in the dyeing process. There is no direct manufacturing labor cost for dyeing. Xiao budgets 50 direct manufacturing labor-hours to weave a rug at a budgeted rate of $17 per hour. (Click the icon to view the budgeted overhead costs.) Read the ! The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: Xiao 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. Xiao makes rugs by hand, but uses a machine to dye the wool. Thus, overhead costs are accumulated in two cost pools -one for dyeing and the other for weaving. Dyeing overhead is allocated to products based on machine-hours (MH). Weaving overhead is allocated to products based on direct manufacturing labor-hours (DMLH)
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