Question
XueXue Manufacturing Company manufactures blue? rugs, using wool and dye as direct materials. One rug is budgeted to use 4040 skeins of wool at a
XueXue
Manufacturing Company manufactures blue? rugs, using wool and dye as direct materials. One rug is budgeted to use
4040
skeins of wool at a cost of
$ 5$5
per skein and
0.70.7
gallons of dye at a cost of
$ 9$9
per gallon. All other materials are indirect. At the beginning of the year
XueXue
has an inventory of
464 comma 000464,000
skeins of wool at a cost of
$ 1 comma 113 comma 600$1,113,600
and
4 comma 3004,300
gallons of dye at a cost of
$ 26 comma 230$26,230.
Target ending inventory of wool and dye is zero.
XueXue
uses the FIFO inventory cost flow method.
blue rugs are very popular and demand is? high, but because of capacity constraints the firm will produce only
230 comma 000230,000
blue rugs per year. The budgeted selling price is
$ 2 comma 300$2,300
each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero.
XueXue
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 on?machine-hours (MH).
There is no direct manufacturing labor cost for dyeing.
XueXue
budgets
6060
direct manufacturing? labor-hours to weave a rug at a budgeted rate of
$ 16$16
per hour. It budgets
0.30.3
?machine-hours to dye each skein in the dyeing process.
There is no direct manufacturing labor cost for dyeing.
XueXue
budgets
6060
direct manufacturing? labor-hours to weave a rug at a budgeted rate of
$ 16$16
per hour. It budgets
0.30.3
?machine-hours to dye each skein in the dyeing process.
| The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: | ||
|
| 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 XueXue sells? (a)230 comma 000230,000 or? (b)200 comma 000200,000 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 comma 000200,000 blue? rugs? |
| 8. | How might top management at XueXue use the budget developed in requirements? 1-6 to better manage the? company? |
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