Page 86 - Budgeting for Managers

Creating a Production Budget
Variable overhead
Indirect materials
Materials handling
$7,500
Fixed overhead
$10,000
Indirect labor (supervisors) $15,000 69
Maintenance $3,600
Rent $6,000
Depreciation $1,500
Utilities $5,000
Total manufacturing overhead $48,600
Table 4-4. Estimate of overhead
We estimate our fixed overhead costs by looking at past
actual figures and seeing what will change, as we discussed ear-
lier in this chapter.
Completing the Cost of
Overhead The costs of
Goods Sold Budget operating a business that
We can now assemble our are not direct costs of pro-
budget and calculate the duction. Overhead is counted as part
of the cost of goods sold.
total cost of goods sold, as
Fixed overhead Overhead that will
shown in Table 4-5. The
cost the same regardless of the quan-
work-in-progress items
tity of finished goods produced.
would be used if we had
Variable overhead Overhead that
items that were partway
varies with the quantity of finished
through production at the
goods produced.
beginning or end of the
Indirect materials Items purchased
year. We also see a zero for
by a manufacturing operation that are
our end-of-year parts not included in the actual items being
inventory; we plan to end produced.An example would be pack-
the year with all parts ing materials.
assembled into finished
goods. In our simple example, we are assuming that the price of
parts hasn’t changed from last year to this year.
When you do your budget, have the accounting department
help you with LIFO, FIFO, or JIT inventory value calculations.