Other Operating Budgets Managerial Accounting Prepared by Diane Tanner University of North Florida Chapter 39

If labor hours are given in minutes, you must convert to hours. Example: 12 minutes = hours 2 Direct Labor Budget Number of units to be produced Labor hours per unit Rate per hour ×× Budgeted direct labor = Fringe benefits are included as part of the labor wage rate.

Units to be produced 26,000 Direct labor hours (3/60) 0.05 Labor hours required 1,300 Hourly wage rate $20 Budgeted direct labor cost $ 26,000 Direct Labor Budget Example At Dinker Co. each coffee mug of product requires 3 minutes of direct labor. Workers are paid $18.50 per hour. Fringe benefits are $1.50 per hour. The company plans to produce 26,000 mugs in May. 3 From production budget

Manufacturing Overhead Budget Normal Costing Example AT, Inc. produced 26,000 units and sold 25,000 of them in April. applies manufacturing overhead rate of $1.50 per unit produced. 4 Production in units 26,000 Manufacturing overhead rate $ 1.50 Budgeted manufacturing overhead costs $39,000

5 Manufacturing Overhead Budget Actual Costing Remains constant at all activity levels Number of units to be produced Cost per unit of production Budgeted MOH = Variable costs + Fixed costs = × + Total Fixed Costs

6 Selling & Administrative Expense Budget  Includes only operating costs  i.e., Period costs  Selling costs  General and administrative costs  Corporate costs  Salaries  Advertising  Office expenses  Rent  Insurance

Selling and Administrative Budget Format 7 Variable expenses: Supplies expense ($0.50 x 6,600)$ 3,300 Wages expense ($1.60 x 6,600)10,560$13,860 Fixed expenses: Corporate depreciation $ 5,000 Utilities expense11,000 Office administrative costs7,000 Insurance expense4,000 Total fixed expenses 27,000 Total budgeted selling & administrative expenses $40,860 During May, AT, Inc. produced 6,400 units and sold 6,600 units during May. It estimated administrative supplies would cost $0.50 per unit, and sales clerk wages would cost $1.60 per unit. Additionally, it estimated $5,000 for corporate depreciation, $11,000 for utilities, $7,000 for office admin costs, and $4,000 for insurance.

Capital Expenditures Budget  Based on capital budgeting decisions that are deemed acceptable  Property, plant and equipment  Shows how much cash will be paid out to buy plant assets and intangible assets  Must be carefully planned  Consume substantial cash reserves

9 The End