Ending Finished Goods Inventory Budget
Ending Finished Goods Inventory Budget:
Learning Objective of the article:
- Define and explain ending finished goods inventory budget.
- Prepare a manufacturing overhead budget.
After preparing sales budget, production budget, direct materials budget, direct labor budget, and manufacturing overhead budget the management has all the data needed to calculate unit product cost. This calculation is needed for two reasons: first, to determine cost of goods sold on the budgeted income statement; and second, to know what amount to put on the balance sheet inventory account for unsold units. The carrying cost of unsold units is calculated on the ending inventory finished goods budget.
Example:
The unit product cost calculations for Hampton Freeze Inc. are shown below: (see explanation)
Hampton Freeze Inc. |
|||
Item |
Quantity | Cost | Total |
Production Cost Per Case: | |||
Direct materials | 15 Pounds | $0.20 per pound | $3.00 |
Direct labor | 0.40 hours | 15.00 per hour | 6.00 |
Manufacturing overhead | 0.40 hours | 10.00 per hour | 4.00 |
——— | |||
Unit product cost | $13.00 | ||
====== | |||
Budgeted finished goods inventory: | |||
Ending finished goods inventory (see production budget) | 3,000 | ||
Unit production cost (see above) | $13.00 | ||
———– | |||
Ending finished goods inventory in dollars | $39.00 | ||
====== |
Explanation of Ending Finished Goods Inventory Budget for Hampton Freeze Inc.
For Hampton Freeze Inc. the absorption costing unit product cost is $13 per case of popsicles (finished goods of Hampton Freeze Inc.)–costing of $3 of direct materials, $6 of direct labor, and $4 of manufacturing overhead. The manufacturing overhead is applied to units of product on the basis of direct labor-hours at the rate of $10 per direct labor-hour. The budgeted carrying cost of the expected inventory is $39,000.
You may also be interested in other articles from “Budgeting and planning” chapter:
- Profit Planning
- Participative or Self Imposed budgeting
- Human Factors in Budgeting
- Zero Based Budgeting (ZBB)
- Budget Committee
- Master Budget
- Sales Budget
- Production Budget
- Inventory Purchases Budget for a Merchandising Firm
- Material Budgeting | Direct Materials Budget
- Labor Budget
- Manufacturing Overhead Budget
- Ending Finished Goods Inventory Budget
- Selling and Administrative Expense Budget
- Cash Budget
- Budgeted Income Statement
- Budgeted Balance Sheet
- International Aspects of Budgeting
Other Related Accounting Articles:
- Manufacturing Overhead Budget
- Direct Labor Budget
- Inventory Purchases Budget for a Merchandising Firm
- Selling and Administrative Expense Budget
- Material Budgeting | Direct Materials Budget
- International Aspects of Budgeting
- Zero Based Budgeting (ZBB):
- Human Factors in Budgeting
- Budgeting Methods: How to choose one for your business
- Participative Budgeting or Self Imposed Budgeting
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