In developing the entire operating budget as an example for a small business, we are using a small hypothetical business, Art Craft Pottery, as an example. The following information can be used to develop the ending finished goods inventory budget:
Information
You have already developed the direct materials, direct labor, and overhead budgets. You use information from those budgets to develop this budget.
Exercise for Art Craft Pottery
Step 1 is to calculate the unit product cost using the budgets above.
Direct materials: Cost of Clay = $3; Cost of Color = $0.20
Cost of Direct Materials = $3.20
Direct Labor: 0.12 hr @ $10 = $1.20
Overhead: Variable: 0.12 @ $5 = 0.60
Fixed: 0.12 @ $9.59* = 1.15
Total Unit Cost = $3.20 (Direct Materials) + $1.20 (Direct Labor) + $1.75 (Overhead) = $6.15 per unit
*Budgeted Fixed Overhead/Budgeted Direct Labor Hrs = $6,580/686.4 = $9.59
Ending Finished Goods Inventory Budget for Art Craft Pottery
Pottery 200 units
Unit Cost X$6.95
Total Ending Inventory =$1,390