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9.5: Ending Inventory Budget

  • Page ID
    45918
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    Learning Outcomes

    • Create an ending inventory budget

    As the senior accountant at Hupana, it is your job to oversee the preparation of the master budget. You have been waiting on the manufacturing overhead budget, so you can complete the finished goods inventory budget. Having the balance for finished goods inventory is needed before you can move on to the budgeted financial statements that are part of your job! Luckily, you now have all of the information needed to move forward. Your managers have provided you with the details to fill in all of the blanks in this finished goods inventory budget!

    Ok, so we have completed the first five budgets needed to help us figure out the value of our ending inventory among other things!

    Calculating the per unit cost of our finished goods inventory is an important figure. We will need it to calculate the cost of goods sold. How much was spent to manufacture the remaining items in inventory will also give us the value of what we still have in our stock. This is an asset on our balance sheet, so getting the calculation right is important.

    Hupana Running Company Ending Finished Goods Inventory Budget
    Item Quantity Cost Total
    Production cost per pair 5 unit $2 unit $10
    Direct materials (from direct materials budget) 0.5 hour $20 hour $10
    Direct labor (from direct labor budget) 0.5 hour $11 hour $6
    Manufacturing overheard (from manufacturing overhead budget) $26
    Unit production
    Budgeted finished goods inventory
    Ending finished goods inventory (in pairs)-from production budget 150
    Unit product cost (from above) $26
    Ending finished goods inventory in dollars $3,825

    The finished goods inventory budget, references several other budgets we have prepared. Without those budgets, we would not have had a good number to use for our balance sheet that included all of the costs involved in the manufacture of the shoes left in our ending inventory.

    So we now have a ton of information about our production schedule, our costs of manufacturing and a really good handle on our inventory. This is a great start, but there is a lot more to the overall business than what happens in manufacturing. There are costs relating to administration  and selling expenses that are necessary to get the orders to make the products that we sell.

    Let’s get started!

    CC licensed content, Original
    • Ending Inventory Budget. Authored by: Freedom Learning Group. Provided by: Lumen Learning. License: CC BY: Attribution

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