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Ending Finished Goods Inventory Budget - An Example

Developing the Operating Budget


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:


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

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