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.
Ending Finished Goods Inventory Budget
Absorption Costing Bases
For the Year Ended December 31, 2009 |
|
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 |
| |
|
|
====== |
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. |
