Question

Discuss the components of each of the following manufacturing cost budgets: 1. Production budget 2. Direct materials purchase budget 3. Direct labor budget 4. Factory overhead budget 5. Cost of goods manufactured budget 6. Cost of goods sold budget

Answer 1

Production Budget  It calculate number of units to be produced

components

• Units to be sold
• Ending inventory of finished goods
• Beginning finished goods inventory.

Production Budget = Units to be sold +Ending inventory of finished inventory- Beginning inventory of finished inventory

Direct Material Purchase Budget It shows number of units of direct material purchased and its cost.

Components

• Number of units needed for production
• Beginning inventory of raw material
• Ending inventory of raw material

Formula = Number of units needed for production+Ending inventory -Beginning inventory

Direct labour Budget It shows number of hours required for production & total labour cost.It is prepared after production budget.

Components

• Number of hours required for production
• Labour cost per hour

Formula = Number of hours required for production * Labour cost per hour

Factory Overhead Budget It shows manufacturing overhead cost .

Components

• Variable Overhead cost
• Fixed Overhead cost

Variable production overhead= Production units*variable rate per unit.

Fixed Overhead cost = Total of all fixed manufacturing overhead required for production.

Cost of goods manufactured Budget It calculates total manufacturing cost

It based on

• Direct material Purchase Budget
• Direct Labour cost budget
• Factory Overhead Budget

Cost of Goods Manufactured Budget= Cost of direct material+Direct Labour cost+Factory Overhead cost+Beginning work in process -Ending work in process.

Cost of goods sold budget It calculate cost of goods that have been sold

It based on

• Direct material Purchase Budget
• Direct Labour cost budget
• Factory Overhead Budget
• Cost of goods manufactured budget

Formula = Cost of goods manufactured+ beginning inventory of finished goods - Closing inventory of finished goods