Answered: Calculate the budgeted overhead…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter9: Evaluating Variances From Standard Costs

Section: Chapter Questions

Problem 3E: Salisbury Bottle Company manufactures plastic two-liter bottles for the beverage industry. The cost...

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Xin Manufacturing Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use

38 skeins of wool at a cost of $7 per skein and 0.7 gallons of dye at a cost of $5 per gallon. All other materials are indirect. At the beginning of the year Xin has an inventory of 456,000 skeins of wool at a cost of $1,048,800 and 3,400 gallons of dye at a cost of

$21,760. Target ending inventory of wool and dye is zero.

Xin uses the FIFO inventory cost flow method.There is no direct manufacturing labor cost for dyeing. Xin budgets 48 direct manufacturing labor-hours to weave a rug at a budgeted rate of $17 per hour. It budgets 0.3 machine-hours to dye each skein in the dyeing process.

Xin

blue rugs are very popular and demand is high, but because of capacity constraints the firm will produce only

275,000

blue rugs per year. The budgeted selling price is

$2,400

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

Xin 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).

The following table presents the budgeted overhead costs for the dyeing and weaving cost pools:

Dyeing

Weaving

(based on 3,135,000 MH)

(based on 13,200,000 DMLH)

Variable costs

Indirect materials

$15,510,000

Maintenance

6,590,000

5,540,000

Utilities

7,595,000

2,705,000

Fixed costs

Indirect labor

392,000

1,760,000

Depreciation

2,221,000

285,000

Other

758,000

5,880,000

Total budgeted costs

$17,556,000

$31,680,000

Calculate the budgeted overhead allocation rates for weaving and dyeing.

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