Solved: Xander Manufacturing Company manufactures

blue rugs using wool and dye

Xander Manufacturing Company manufactures blue rugs using wool and dye

Xander 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 $ 2 per skein and 0.8
gallons of dye at a cost of $ 6 per gallon. All other materials 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 zero. 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
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. 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. The following table presents the budgeted overhead
costs for the dyeing and weaving cost pools:

Required
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 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.
7. What actions might you take as a manager to improve profitability if sales drop to 185,000
blue rugs?
8. How might top management at Xander use the budget developed in requirements 1– 6 to
better manage thecompany?

Xander Manufacturing Company manufactures blue rugs using wool and dye

ANSWER
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