The ending finished goods inventory budget provides us with the information required for the construction of budgeted financial statements. After completing the previous 5 budgets (Sales Budget, Production Budget, Direct Material Budget, Direct Labor Budget and Factory Overhead Budget), a set of sufficient data will have been generated to compute the “per-unit manufacturing cost of finished product“. This computation is required for two reasons:
- to help compute the “cost of goods sold” on the “budgeted income statement“.
- to give the dollar value of the “ending finished goods inventory” to appear on the “budgeted balance sheet“.
So, an “Ending Finished Goods Inventory Budget” could be constructed as below:
Note: The “300 units” is pulled from “Production Budget – Desired Ending Inventory”.
Selling and Administrative Expense Budget
The selling and administrative expense budget lists the operating expenses involved in selling the products and in managing the business. Just as in the case of the factory overhead budget, this budget can be developed using the cost-volume (flexible budget) formula in the form of y=a+bx.
Note: If the number of expense items is very large, separate budgets may be needed for the selling and administrative functions.
Here is the “Selling Administrative Expense Budget” illustrated below: