Page 84 - Budgeting for Managers

CPU
Monitor
Keyboard
Materials needed per unit
1
1
1
Total production needs (units
times production needs) Creating a Production Budget 55,000 67
55,000
55,000
Less in-progress inventory 0 0 0
Add: desired ending inventory 10,000 10,000 10,000
Total direct materials needed 65,000 65,000 65,000
Less: beginning inventory materials 2,000 3,000 1,500
Direct materials to be purchased 63,000 62,000 63,500
Cost per unit $300 $100 $25
Cost of materials (per item) $18,900,000 $6,200,000 $1,587,500
Sum of materials to be purchased
(all items) $26,687,500
Table 4-2. Direct materials budget
We finish the direct materials budget by multiplying the
number of units we plan to buy for each component times the
cost per unit. Then we add all of these to determine the total
cost of materials to be purchased for all items (parts and raw
materials).
Calculating Direct Labor Costs
We calculate the total hours of direct labor, as shown in Table 4-
3, by multiplying the time it takes to assemble each unit by the
number of units we’re producing. How do we know how long it
will take? If we haven’t done this already, we should build the
estimates by finding out how long each task takes on each
assembly line. Alternatively, we can count the units produced in
a given number of hours while a given number of people are
working. However, the more detail we have, the better we’ll be
able to make our estimates and the better we’ll be able to pre-
dict the results of change and manage our staff.
We calculate direct labor costs by multiplying the hours
each employee works by the cost of paying that employee. The