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.
The unit product cost calculations for Hampton Freeze Inc. are shown below: (see explanation)
Hampton Freeze Inc.
|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.