Xuan Manufacturing Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use 36 skeins of wool at a cost of $3 per skein and 0.80 gallons of dye at a cost of $6 per gallon. All other materials are indirect. At the beginning of the year Xuan has an inventory of 448,000 skeins of wool at a cost of $985,600 and 3,800 gallons of dye at a cost of $21,660. Target ending inventory of wool and dye is zero. Xuan uses the FIFO inventory cost flow method.

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