Question

Xin 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 0.75 gallons of dye at a cost of $8 per gallon. All other materials are indirect. At the beginning of the year Xin has an inventory of 452,000 skeins of wool at a cost of $949,200 and 3,600 gallons of dye at a cost of $22,320. Target ending inventory of wool and dye is zero. Xin uses the FIFO inventory cost flow method (Click the icon to view the additional information.) There is no direct manufacturing labor cost for dyeing. Xin budgets 48 direct manufacturing labor hours to weave a rugat a budgeted rate of $15 per hour budgets 0.25 machine-hours to dye each skin in the dyeing process (Click the icon to view the budgeted overhead costs) Read the requirements 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 Physical Units Budget Direct materials required for Dye Total Blue rugs skeins

Answer 1

1.

	Wool	Dye
Physical units budgets
One blue rugs needs	40 skeins	0.75 gallons
Total needed	10,000,000 skeins	187,500 gallons
	(250,000 × 40)	(250,000 × 0.75)
Cost Budget
Beginning inventory	452,000 skeins	3,600 gallons
Cost	$949,200	$22,320
To be purchased	9,548,000 skeins	183,900 gallons
	(10,000,000 - 452,000)	(187,500 - 3,600)
Cost per skein or gallons	$5 per skein	$8 per gallon
	$47,740,000	$1,471,200
Total Direct material used in the period	$48,689,200	$1,493,520

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2.

Weaving budgeted overhead = Total budgeted overhead $\div$ Total DMLH

= $31,200,000 $\div$ 12,000,000

= $2.6 per DMLH

Dyeing budgeted overhead = Total budgeted overhead $\div$ Total MH

= $17,500,000 $\div$ 2,500,000

= $7 per MH

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3.

The budgeted unit cost of a blue rug:

	Cost per unit of input	Input per unit of output	Total
Wool	$5	40 skeins	$200
Dyeing	$8	0.75 gallon	$6
Direct Manu. Labor	$15	48 hrs	$720
Dyeing O/Hd*	$7	10 mhrs	$70
Weaving O/Hd	$2.60	48 hrs	$124.80
			$1,120.80
* 40 skeins × 0.25 = 10 Mhrs

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4.

	Budgeted revenue:
		Unit	×	Price	=	Total revenue
a	Blue rugs	250,000		$2,200		$550,000,000
b	Blue rugs	225,000		$2,200		$495,000,000