Budgeting; direct material usage, manufacturing cost, and gross margin. 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 laborhours 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. Required Required assignMent Material 235 The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: Dyeing (based on 1,440,000 MH) Weaving (based on 12,400,000 DMLH) Variable costs Indirect materials $ 0 $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. 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 the company?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Budgeting; direct material usage,
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,
on machine-hours (MH).
There is no direct manufacturing labor cost for dyeing. Xander budgets 62 direct manufacturing laborhours 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.
Required
Required
assignMent Material 235
The following table presents the budgeted overhead costs for the dyeing and weaving cost pools:
Dyeing
(based on 1,440,000 MH)
Weaving
(based on 12,400,000 DMLH)
Variable costs
Indirect materials $ 0 $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.
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
the company?
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