Xin Manufacturing Company manufactures blue rugs using wool and dye as direct materials. One rug is budgeted to use 40 skeins of wool at cost of $4 per skein and 0.75 gallons of dye at a cost of $8 per gallon. All other materials are indirect. At the beginning of the year, Xin has an inventory of 462,000 skeins of wool at a cost of $1,062,600 and 4,200 gallons of dye at a cost of $25,200. Target ending inventory of wool and dye is zero. Xin uses the FIFO inventory cost flow method. It budgets 0.25 machine-hours to dye each skein in the dyeing process. There is no direct manufacturing labor cost for dyeing. Xin budgets 55 direct manufacturing labor-hours to weave a rug at a budgeted rate of $15 per hour. 1. 2. 3. 4. 5. Prepare a direct material usage budget in both units and dollars. Calculate the budgeted overhead allocation rates for dyeing and weaving. Calculate the budgeted unit cost of a blue rug for the year. Prepare a revenues budget for blue rugs for the year, assuming Xin sells (a) 220,000 or (b) 195,000 blue rugs (that is, at two different sales levels). Calculate the budgeted cost of goods sold for blue rugs under each sales assumption. Find the budgeted gross margin for blue rugs under each sales assumption. What actions might you take as a manager to improve profitability if sales drop to 195,000 blue rugs? How might top management at Xin use the budget developed in requirements 1-6 to better manage the company? 6. 7. 8. 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 8,400,000 skeins 147,000 Blue rugs gal Cost Budget Available from beginning direct materials inventory (under a FIFO cost-flow assumption) Wool $ 1,012,000 $ 24,395 Dye To be purchased this period Wool 23,820,000 Dye 1,000,300 $ 24,832,000 $ 1,024,695 $ 25,856,695 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.) Total budgeted overhead costs Direct manuf. labor hours = Budgeted manufacturing overhead rate $ 2.30 $ 33,810,000 14,700,000 = 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 = Budgeted manufacturing overhead rate $ 6.9 $ 17,388,000 2,520,000 = Requirement 3. Calculate the budgeted unit cost of a blue rug for the year. (Round your answers to two decimal places.) Cost per Budgeted Input per unit of output unit of input X = unit cost Wool $ 3 X 40 $ 120.00 Dye 7 0.70 4.90 14 70 980.00 Direct manufacturing labor Dyeing overhead 6.9 12.00 82.80 2.30 Weaving overhead 161.00 70 $ 1,348.70 Total Requirement 4. Prepare a revenue budget for blue rugs for the year, assuming Xenos sells (a) 210,000 or (b) 190,000 blue rugs (that is, at two different sales levels). Revenue Budget Units Selling price Total revenues 210,000 $ 2,100 $ 441,000,000 190,000 2,100 399,000,000 (a) Blue rugs (b) Blue rugs 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 210,000 rugs, and then (b) complete a cost of goods sold budget assuming sales of 190,000 rugs. Cost of Goods Sold Budget (a) 210,000 units (b) 190,000 units $ 0 $ 0 Beginning finished goods inventory Direct materials used $ 25,856,695 205,800,000 51,198,000 $ 25,856,695 205,800,000 Direct manufacturing labor Manufacturing overhead 51,198,000 282,854,695 282,854,695 Cost of goods manufactured Cost of goods available for sale 282,854,695 282,854,695 26,974,000 0 Deduct ending finished goods inventory $ 282,854,695 $ 255,880,695 Cost of goods sold 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 210,000 rugs, and then (b) finding the budgeted gross margin assuming sales of 190,000 rugs. Budgeted Income Statement Revenues (a) 210,000 units (b) 190,000 units $ 441,000,000 $ 399,000,000 282,854,695 255,880,695 Cost of goods sold 158,145,305 143, 119,305 Gross margin Requirement 7. What actions might you take as a manager to improve profitability if sales drop to 190,000 blue rugs? If sales drop to 190,000 blue rugs, Xenos should look to reduce fixed costs and produce less to reduce variable costs and inventory costs. Requirement 8. How might top management at Xenos use the budget developed in requirements 1-6 to better manage the company? (Select all that apply.)