Xander Manufactur Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to le skeins of wool at a cost of $2 per skein and 0.8 gallons of dye at a cost of $6 per gallon. All other mate als are indirect. At the beginning of the year Xander has an inventory of 458,000 skeins of wool at a cost of $961,800 and 4,000 gallons of dye at a cost of $23,680. Target ending inventory of wool and dye is zern Xander uses the FIFO inventory cost-flow method. Xander blue rugs are very popular and demand is high, but because of capacity constraints the firm will produce only 200,000 blue rugs per year. The budgeted selling price is $2,000 each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero. Xander makes rugs by hand, but uses a machine to dye the wool. Thus, overhead costs are accumu. lated in two cost pools-one for weaving and the other for dyeing. Weaving overhead is allocated to prod- ucts 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. Xander budgets 62 direct manufacturing labor hours to weave a rug at a budgeted rate of $13 per hour. It budgets 0.2 machine-hours to dye each skein in the dyeing process Table presents the budgeted overhead costs for the dyeing and weaving cost pools: Dyeing Weaving (based on 1,440,000 MH) (based on 12,400,000 DMLH) Variable costs Indirect materials $15,400,000 Maintenance 6,560,000 5,540,000 Utilities 7,550,000 2,890,000 Fixed costs Indirect labor 347,000 1,700,000 Depreciation 2,100,000 274,000 Other 723,000 5,816,000 Total budgeted costs $17,280,000 $31,620,000
1. Prepare a direct materials 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 Xander sells (a) 200,000 or (b) 185,000 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. What actions might you take as a manager to improve profitability if sales drop to 185,000 blue rugs? How might top management at Xander use the budget developed in requirements 1-6 to better manage Rei the company?