PRODUCTION budget
Prepared by :-
ANKIT PANDEY & YAMAN TIWARI
Contents :y Production Budget. y Production Cost Budget. y
Direct Material Budget. y Direct Labour Budget. y Factory
Overheads.
PRODUCTION BUDGETy A firm prepares a production budget after
determining
the number of units that it expects to sell. y A production
budget is a plan for acquiring the resources needed to carry out
the manufacturing operations to satisfy the expected sales and
maintain the desired ending inventory. y The total number of units
to be produced depends on the budgeted sales, the desired units of
finished goods ending inventory, and the units of finished goods
beginning inventory
PRODUCTION BUDGETy After preparing the sales budget, the
production
budget is prepared a production budget is stated in physical
units. It specifies the no. of units is each product that must be
produced to satisfy the sales forecasts and to achieve the desire
level of closing finished goods inventory. Essentially, the
production budget is sales budget adjust for inventory changes as
follows: y Kerry expects to have 5,000 units on hand on April 1 and
wants to have 30% of the following months projected unit sales on
hand at the end of each month.
PRODUCTION BUDGETy Determining the budgeted units of
production:-
Budgeted production (in units) = Budgeted (sales in units) +
Desired ending inventory(in units) Beginning inventory(in units).y
The production budget, like other budgets, is
detailed by months or quarters along with a tentative annual
budget. further, budget are prepared for every production centre
for comparison with actual production
15-6
Production Budget
ales in units + Desired ending finished goods inventory = Total
units required
Total units required - Expected beginning finished goods
inventory = Units to be produced1st 2nd 3rd 4th Year 15,000 5,000
10,000 20,000 50,000
Sales in units Add desired ending inventory of finished goods
Total units required Less expected beginning inventory of finished
goods Units to be produced
500 1,000 2,000 1,500 1,500 15,500 6,000 12,000 21,500
51,500
1,500 500 1,000 2,000 1,500 14,000 5,500 11,000 19,500
50,000
0% of next quarters expected sales
0% of first quarter of next years expected sales of 5,000
Production cost budgety A production cost budget summarizes the
material
budget, labor budget, the factory overhead budget, and may be
expressed departments and or products. A production cost budget,
also known as a manufacturing budget is made up of three budgets:
(1)Direct materials y (2)labour y (3)factory overhead.y
Direct materials budgety The information in the production
budget becomes the
basis for preparing several manufacturing-related budgets. y A
direct materials usage budget shows the direct materials required
for production and their budgeted cost. y This budget specifies the
cost of direct materials used and the cost of the direct materials
purchased below the figure explains the calculation of the direct
materials budget. The usage part of the direct materials budget
determines the cost of purchases of direct materials.
Direct materials budgety The direct material budget is useful in
the y
y y y
following ways: 1.it helps the purchasing department to prepare
a schedule to ensure delivery of materials when needed. 2.it helps
in fixing minimum and maximum levels of inventories in the store
department. 3.it helps the finance manager to determine the
financial requirements to meet production targets. The materials
budget usually deals with direct materials only .
Direct materials budgety supplies and indirect materials
are:-
Total direct materials needed in production + Desired direct
materials ending inventory = Total Direct materials purchase for
the period + Direct material beginning inventory
15-11
Direct Material BudgetShows the number of units and the cost of
material to be purchased and used1st 2nd 5,500 x 1.5 3rd 11,000 x
1.5 4th 19,500 x 1.5 Year 50,000 x 1.5
nits to be produced Required per unit (yards) Required for
production (yards) dd desired ending inventory (yards) Total
required Less expected beginning inventory (yards)
14,000 x 1.5
Total raw material required Expected beginning inventory of raw
material = Raw material to be purchased Raw materials required for
production + Desired ending inventory = Total raw material
required
21,.000
8,250
16,500
29,250
75,000
825 21,825
1,650 9,900
2,925 19,425
2,100 31,350
2,100 77,100
2,100
825 9,075 x $2 18,150
1,650 17,775 x $2 $35,550
2,925 28,425 x $2 $56,850
2,100 75,000 x $2 $150,000
Purchases (yards) 19,725 Cost per yard x $2 Total cost
$39,450
DIRECT LABOR BUDGETy To prepare the direct labor budget, a
company would
use its production budget y The direct labor budget enables the
personnel department to plan for hiring and repositioning of
employees y A good labor budget helps the firm to avoid emergency
hiring, prevent labor shortages, and reduce or eliminate the need
to lay off workers y Firms usually prepare labor budget for each
type of labors. For example, for each skill requirement.
15-13
Direct-Labor Budget
Shows the number of hours and the cost of direct labor to be
used during the budget periodnits to be produced Direct-labor
required per unit Total direct-labor hours required Direct-labor
cost per hour Total direct-labor cost st 14,000 x .2 nd 5,500 x .2
rd 11,000 x .2 th 19,500 x .2 ear 50,000 x .2
2,800 x $10 x
1,100 $10 x
2,200 $10 x
3,900 $10
10,000 x $10
$28,000
$11,000
$22,000
$39,000 $100,000
For either strategic business reasons or ethical concerns, many
companies try to maintain a relatively stable labor force. If
production employees are retained when production declines, the
labor force will not be a unit-level cost.
Factory Overhead Budgety A factory overhead budget often
includes all
production costs other than direct materials and direct labor.y
Unlike direct materials and direct labor, manufacturing
overhead costs include costs that vary in direct proportion with
the units manufactured as well as costs that vary with either the
kind of facilities the firm has or the way in which the firm
carries out it operations
actory Overhead
udget
Shows the cost of overhead expected to be incurred in the
production process during the budget periodIndirect material
Electricity for machineryUnit-level costs atch-level costs $8,400
$3,300 $6,600 $11,700 $30,000 Product-level $1,000 $1,000 $1,000
$1,000 $4,000 costs acility and gen'l operations level costs
$36,500 $36,500 $36,500 $36,500 $146,000 otal overhead ess
depreciation otal cash disbursements for overhead $51,500 $43,000
$48,500 $57,000 $200,000 $15,000 $15,000 $15,000 $15,000 $60,000 st
$5,600 nd $2,200 rd $4,400 th $7,800 ear $20,000
Setup Purchasing & material handling Inspection Design
Supervisory salaries Insurance and property taxes Maintenance
Utilities Depreciation
$36,500 $28,000 $33,500 $42,000 $140,000
THANKS TO ALL OF OU
