1. Chapter 6 Master budget for manufacturing organisations
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

2. Cost classifications
Product costs are the costs of converting raw materials into a finished product. 1. Raw materials 2. Direct labour 3. Factory overhead
Period costs are all other costs associated with the business. 1. Marketing expenses 2. General and administration expenses 3. Financial expenses
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

3. Product costs
Direct costs: major items of cost that can be relatively easily traced to the product, such as raw materials and direct labour.
Raw materials and direct labour Prime cost
Indirect costs: cannot not be easily traced directly to the product. All factory overhead.
Factory overhead: all indirect costs of running a factory. Examples: indirect materials, indirect labour, factory insurance.
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

4. Manufacturing process
Direct materials
input
Direct labour & factory overhead
process
output
Finished goods
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

5. Cost of production requires the preparation of the following budgets
Sales
Production
Direct materials usage
Direct labour
Factory overhead
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

6. Production budget
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

7. Factory overhead budget
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

8. Direct materials and labour budget
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

9. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

10. Factory overhead application rate
This allows the business to charge the product with an estimated amount.
Application rate can be calculated on different bases:
per unit
direct labour cost
direct labour hours
machine hours.
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks

11. Cost of goods sold budget
Merchandising business beginning add net purchases cost of goods available for sale less end cost of goods sold
Manufacturing business beginning add cost of production cost of goods available for sale less end cost of goods sold
Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Budgeting 3e by Alan Banks