Woolworth 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 Rs. 20 per skein and 0.8 gallons of dye at a cost of Rs. 60 per gallon. All other materials are indirect. At the beginning of the year Woolworth has an inventory of 4,58,000 skeins of wool at a cost of Rs. 96,18,000 and 4000 gallons of dye at a cost of Rs.2,36,800. Target ending inventory of wool and dye is zero. Woolworth uses the FIFO inventory cost flow method.

Woolworth blue rugs are very popular, and demand is high, but because of capacity constraints the firm will produce only 2,00,000 blue rugs per year. The budgeted selling price is Rs. 20,000 each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero. Woolworth 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).

There is no direct manufacturing labor cost for dyeing. Woolworth budgets 62 direct manufacturing labor-hours to weave a rug at a budgeted rate of Rs.130 per hour. It budgets 0.2 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:

Particulars	Dyeing (based on 14,40,000 MH)	Weaving (based on 1,24,00,000 DMLH)
Variable Costs
Indirect materials	0	15,40,00,000
Maintenance	6,56,00,000	5,54,00,000
Utilities	7,55,00,000	2,89,00,000
Fixed Costs
Indirect labor	34,70,000	1,70,00,000
Depreciation	2,10,00,000	27,40,000
Other	72,30,000	5,81,60,000
Total Budgeted	Rs. 17,28,00,000	Rs. 31,62,00,000

Required

a) Prepare a direct material usage budget in both units and rupees.

b) Calculate the budgeted overhead allocation rate for weaving and dyeing. c) Calculate the budgeted unit cost of a blue rug for the year.

d) Prepare a revenues budget for blue rugs for the year, assuming Woolworth sells (a) 2,00,000 (b) 1,85,000 blue rugs (that is, at two different sales levels).

e) Calculate the budgeted cost of goods sold for blue rugs under each sales assumption. f) Find the budgeted gross margin for blue rugs under each sales assumption. g) What actions might you take as a manager to improve profitability if sales drop to 1,85,000 blue rugs?

h) How might top management at Woolworth use the budget developed in requirements 1-6 to better manage the company?

Section 2(20 Marks: 10 marks each)

1. IIT Jodhpur primary health centre (PHC) draws swab samples from approximately 2,000 students each month. The standard time for a technician to draw and prepare a swab sample for RT PCR testing is 9.5 minutes.

The standard wage rate for technicians is 25 per hour. During August month, technicians processed 1,910 samples and were paid 10,480 for 322 hours of work related to drawing and preparing the blood samples.

a) Calculate labor rate and efficiency variances for August, and comment on whether or not labor costs for technicians appear to be out of control.

2. SME is considering three alternative proposals for conveyance facilities for its placements personnel's who have to do considerable traveling, approximately 20,000 kms every year. The proposals are as follows:

a) Purchase and maintain its own fleet of cars. The average cost of car is Rs. 1,00,000

b) Allow the executive to use his own car and reimburse expenses at the rate of Rs. 1.60 per kilometer and also bear insurance costs

c) Hire cars from an agency at Rs. 20,000 per year per car. The company has to bear costs of petrol, taxes and tyres.

The following further details are available:

Petrol	Rs. 0.60 per km
Repairs and Maintenance	Rs. 0.20 per km
Tyres	Rs. 0.12 per km
Insurance	Rs. 1,200 per car per annum
Taxes	Rs. 800 per car per annum
Life of the car	5 years with annual mileage of 20,000 kms
Resale value	Rs. 20,000 at the end of the fifth year

Required:

Work out the relevant costs of three proposals and rank them.