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Requirements

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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 Xavier sells (a) 230,000 or (b) 200,000 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 200,000 blue rugs?
8.	How might top management at Xavier use the budget developed in requirements 1-6 to better manage the company?

Data table

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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

More info

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Xavier blue rugs are very popular and demand is high, but because of capacity constraints the firm will produce only 230,000 blue rugs per year. The budgeted selling price is $2,300

each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero.

Xavier makes rugs by hand, but uses a machine to dye the wool. Thus, overhead costs are accumulated in two cost poolsone 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).

Xavier manufacturing Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use 40 skeins of wool at a cost of $5 per skein and 0.7 gallons of dye at a cost of $9 per gallon. All other materials are indirect. At the beginning of the year Xavier has an inventory of

464,000 skeins of wool at a cost of $1,113,600 and 4,300 gallons of dye at a cost of $26,230.

Target ending inventory of wool and dye is zero. Xavier uses the FIFO inventory cost flow method.

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Part 1

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There is no direct manufacturing labor cost for dyeing. Xavier budgets 60 direct manufacturing labor-hours to weave a rug at a budgeted rate of $16 per hour. It budgets 0.3 machine-hours to dye each skein in the dyeing process.

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Read the

requirements

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Part 1

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
Blue rugs		skeins		gal