Xuereb 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. Xuereb 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 products based on direct manufacturing labor-hours (DMLH). Dyeing overhead is allocated to products based on machine-hours (MH). The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: Variable costs Indirect materials Maintenance Utilities 69 Dyeing Weaving (based on 1,680,000 MH) (based on 12,000,000 DMLH) 0 $ 6,600,000 7,590,000 15,600,000 5,580,000 4,370,000 Fixed costs Indirect labor 387,000 1,920,000 Depreciation 2,216,000 290,000 Other 763,000 5,840,000 17,556,000 $ 33,600,000 Total budgeted costs 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 Xuereb sells (a) 240,000 or (b) 205,000 blue rugs (that is, at two different sales levels). 5. Calculate the budgeted cost of goods sold for blue rugs under each sales 6. 7. 8. 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 205,000 blue rugs? How might top management at Xuereb use the budget developed in requirements 1-6 to better manage the company?