Reference no: EM132596373

A company manufactures rugs using wool and dye as direct materials. One rug is budgeted to use 30 skeins of wool at a cost of $3 per skein and 0.7 gallons of dye at a cost of $8 per gallon. All other materials are considered indirect. The company has an inventory of 250,000 skeins of wool at a cost of $800,000 and 2,000 gallons of dye at a cost of $16,800 at the beginning of the year. The company applies the FIFO inventory cost method. The company expects to produce 100,000 rugs per year. The budgeted selling price is $2,800 per rug. The overhead costs are accumulated in two cost pools, one for weaving and one for dyeing. Weaving overhead is allocated to products based on direct manufacturing labor hours and dyeing overhead is allocated to products based on machine hours. There is no direct manufacturing labor cost for dyeing. The company budgets 58 direct manufacturing labor hours to weave one rug at a budgeted labor rate of $20 per hour. The company budgets 0.1 machine hours to dye each skein in the dyeing process.

The following represents the budgeted overhead costs for dyeing and weaving.

                                                  Dyeing                                 Weaving

                         (Based on 300,000 machine hours) (Based on 5,800,000 direct labor hours)

Variable costs                $685,000                                                $7,000,000

Fixed costs                   $275,000                                                 $6,920,000

Total budgeted costs        $960,000                                           $13,920,000

Question 1: Compute the dollar amount of direct materials to be used to manufacture 100,000 rugs.

Question 2: Compute the budgeted overhead rate for dyeing and weaving.

Question 3: Compute the budgeted unit cost for one rug.

Question 4: Compute the total cost of goods sold if 100,000 rugs are sold.