PRODUCTION BUDGET EXAMPLE

The “La Mejor” leather factory is dedicated to the production of leather goods and
presents the following information on budgeted sales in units for the four quarters
of the year.
Quarter 1 2 3 4 Total
Sandals 12 11 22 22 73

Production budget
Finished product inventory information
Beginning inventory for the first quarter is = 9 pairs of sandals
Final inventory 20% of estimated sales for the next quarter.
Final inventory of products in the fourth quarter = 17 pairs.
Card # 1 units to be produced
Quarter 1 2 3 4
Units to sell 18 11 22 22
(+) Final inventory of
finished products 2 4 4 3
(-) Initial inventory 9 2 4 4
finished product
(=) Units to produce 11 13 22 21

Consumption or requirement of raw materials

DIRECT RAW UNITS UNIT OF UNIT VALUE
MATERIAL MEASUREMENT
Leather (sole) 1.5 Feet Q. 3000.00
Upper 18 DM Q.300.00
Eraser 675 cm Q.5.93

INDIRECT RAW UNITS UNIT OF UNIT VALUE

MATERIAL MEASUREMENT
Thread 7 Mt. Q.71.40
Glue 142 Cm3 Q.7.10

Card # 2 Use or consumption of direct raw materials in units

Use or consumption = units to be produced per amount of direct raw material
required
Material/Quarter 1 2 3 4
Leather 16.50 19.50 33 31.50
Upper 198 234 396 378
Eraser 7,425 8775 14,850 14,175

Card # 3 Use or consumption of direct raw materials in money

Consumption of direct raw materials in units * unit cost of raw materials
Material/Quarter 1 2 3 4
Leather Q.49,500.00 Q.58,500.00 Q. 99,000.00 Q.94,500.00
Upper Q.59,400.00 Q.70,200.00 Q.118,800.00 Q.113,400.00
Eraser Q.44,030.25 Q.52,035.75 Q. 88.060.50 Q.84,057.75

Use or consumption of indirect raw materials

Card # 4 Use or consumption of indirect raw materials in units
Use or consumption = units to be produced * amount of indirect raw material
required
Material/Quarter 1 2 3 4
Thread 77 91 154 147
Glue 1,562 1,846 3,124 2,982

Card # 5 Use or consumption of indirect raw materials in money

Consumption of indirect raw materials in units * unit cost of raw materials
Material/Quarter 1 2 3 4
Thread Q.5,497.80 Q.6,497.40 Q. 10,995.60 Q.10,495.80
Glue Q.11,090.20 Q.13,106.60 Q.22,180.40 Q.21,172.20

Final raw material inventory

It is expected to have a final inventory of raw materials equivalent to 10% of the
raw materials required for the quarter
Schedule #6 final inventory of direct raw materials in units
Final inventory = Quarterly use or consumption * 10%
Schedule #6 final inventory of direct raw materials in units
Final inventory = Use or consumption following quarter * 10%
Material/Quarter 1 2 3 4
Leather 1.65 1.95 3.3 3.15
Upper 19.8 23.4 39.6 37.8
Eraser 742.50 877.50 1,485 1,417.5

Card # 7 final inventory of direct raw materials in money

Material/Quarter 1 2 3 4
Leather Q.4,950 Q.5,850.00 Q.9,900.00 Q.9,450.00
Upper Q.5,940 Q.7,020.00 Q.11,880.00 Q.11,340.00
Eraser Q.4,403.03 Q.5,203.58 Q.8,806.05 Q.8,405.78

Schedule # 8 final inventory of indirect raw materials in units

Final inventory = Use or consumption following quarter * 10%
Material/Quarter 1 2 3 4
Thread 7.70 9.10 15.40 14.70
Glue 156.20 184.60 312.40 298.20

Card # 9 final inventory of indirect raw materials in money

Material/Quarter 1 2 3 4
Thread Q.549.78 Q.649.74 Q.1,099.56 Q.1049.58
Glue Q.1,109.02 Q.1,310.66 Q.2,218.04 Q.2,117.22
Raw material purchases
Initial inventory and initial cost per unit of raw materials
Raw material Initial Unit of Initial Purchase unit
inventory units measurement inventory unit cost
value
Leather (sole) 4 Feet 2,850 Q.3,000.00
Upper 100 DM 280 Q.300.00
Eraser 500 cm 4.92 Q.5.93
Thread 20 mts 70.20 Q.71.40
Glue 1000 Cm3 6 Q.7.10

Card # 10 Purchase of direct raw materials: Leather

Leather 1 2 3 4
Final inventory
units direct raw 1.65 1.95 3.3 3.15
materials
(+) units to use 16.5 19.5 33 31.5
= Units needed 18.15 21.45 36.3 34.65
(-)Inv. Initial 4 1.65 1.95 3.3
direct raw
material
= Units to 14.15 19.8 34.35 31.35
purchase
X Purchase Q.3,000.00 Q.3,000.00 Q.3,000.00 Q.3,000.00
price
= Purchase Q.42,450.00 Q.59,400.00 Q.103,050.00 Q.94,050.00
value

Card # 11 Purchase of direct raw materials: Capellada

Leather 1 2 3 4
Final inventory
units direct raw 19.8 23.4 39.6 37.8
materials
(+) units to use 198 234 396 378
= Units needed 217.8 257.4 435.6 415.8
(-)Inv. Initial 100 19.8 23.4 39.6
direct raw
material
= Units to 117.8 237.6 412.2 376.2
purchase
X Purchase Q.300.00 Q.300.00 Q.300.00 Q.300.00
price
= Purchase Q.35,340.00 Q.71,280.00 Q.123,660.00 Q.112,860.00
value

Card # 12 Purchase of direct raw materials: Rubber

Leather 1 2 3 4
Final inventory
units direct raw 742.5 877.5 1,485 1,417.5
materials
(+) units to use 7,425 8,775 14,850 14,175
= Units needed 8,167.5 9652.5 16,335 15,592.5
(-)Inv. Initial 500 742.5 877.5 1,485
direct raw
material
= Units to 7,667.5 8,910 15,457.5 14,107.5
purchase
X Purchase Q.5.93 Q.5.93 Q.5.93 Q.5.93
price
= Purchase Q.45,468.28 Q.52,836.30 Q.91,662.98 Q.83,657.48
value

Card # 13 Purchase of direct raw materials: Thread

Leather 1 2 3 4
Final inventory
units direct raw 7.70 9.10 15.40 14.70
materials
(+) units to use 77 91 154 147
= Units needed 84 100.1 169.4 161.7
(-)Inv. Initial 20 7.7 9.1 15.4
direct raw
material
= Units to 64.7 92.4 160.3 146.3
purchase
X Purchase Q.71.40 Q.71.40 Q.71.40 Q.71.40
price
= Purchase Q.4,619.58 Q.6,597.36 Q.11,445.42 Q.10,445.82
value

Card # 14 Purchase of direct raw materials: Glue

Leather 1 2 3 4
Final inventory
units direct raw 156.20 184.60 312.40 298.20
materials
(+) units to use 1,562 1,846 3,124 2,982
= Units needed 1,718.2 2030.6 3,436.4 3,280.2
(-)Inv. Initial 1000 156.2 184.6 312.4
direct raw
material
= Units to 718.2 1,874.4 3,251.8 2,967.8
purchase
X Purchase Q.7.10 Q.7.10 Q.7.10 Q.7.10
price
= Purchase Q.5,099.22 Q.13,308.24 Q.23,087.78 Q.21,071.38
value

Labor Information
Post # of employees Salary
Court Clerk 1 Q.3,500.00
Gluing employee 1 Q.3,500.00
sewing employee 1 Q.3,500.00

Time required to prepare the product

In charge Process Time required in mins.
Court Clerk 1 25
Gluing employee 1 30
sewing employee 1 15

Calculations:
Minute value = Total accrued / 30 days / 8hrs. / 60 mins.
Hour value = 3,500 / 30 / 8 = 14.58 / 60 = Q. 0.243
Certificate # 15 Direct labor cutting process
1 2 3 4
Units to 11 13 22 21
produce
Time required 25 25 25 25
in minutes
Total 275 325 550 525
Minute value Q. 0.243 Q. 0.243 Q. 0.243 Q. 0.243
Total value Q. 66.82 Q. 78.98 Q.133.65 Q.127.58

Certificate # 16 Direct labor sewing process

1 2 3 4
Units to 11 13 22 21
produce
Time required 30 30 30 30
in minutes
Total 330 390 660 630
Minute value Q. 0.243 Q. 0.243 Q. 0.243 Q. 0.243
Total value Q. 80.19 Q. 94.77 Q. 160.38 Q. 153.09
Certificate # 17 Direct labor sewing process
1 2 3 4
Units to 11 13 22 21
produce
Time required 15 15 15 15
in minutes
Total 165 195 330 315
Minute value Q. 0.243 Q. 0.243 Q. 0.243 Q. 0.243
Total value Q. 40.1 Q. 47.39 Q. 80.19 Q. 76.54

Manufacturing Overhead Information

For each of the manufactured products, the indirect raw material is charged as
Indirect Manufacturing Costs, as well as 2% of the following additional costs
related to production.
Category Worth
Public services – 70% is Monthly Q.160,000.00
charged to production
Machine maintenance Annual Q.90,000.00
Leasing – 40% is Monthly Q.600,00.00
 charged to production
Machine depreciation Monthly Q. 16,667.00

Schedule # 18 Allocation of indirect manufacturing costs

1 2 3 4
Indirect raw Q.16,588.00 Q.19,604.00 Q.33,176.00 Q.31,668.00
material
Public Q.6,720.00 Q.6,720.00 Q.6,720.00 Q.6,720.00
services
Maintenance Q.150 Q.150 Q.150 Q.150
Lease Q.14,400 Q.14,400 Q.14,400 Q.14,400
Depreciation Q.1,000 Q.1,000 Q.1,000 Q.1,000
Total Q.38,859.00 Q.41,876.00 Q.55,449.00 Q.53,942.00

Details
Indirect raw material: data obtained from card # 9
 Public services: Q.160,000.00 * 70% = 112,000 (monthly) * 2% = 2,240
(monthly) * 3 (quarter months) = Q.6,720.

 Maintenance: Q.90,000.00 (annual) * 2% = Q.1,800 (annual) /12 = Q.150

 Lease:Q. 600,000.00 * 40% = Q.240,000.00 (monthly) * 2% = Q.4,800

(Monthly) * 3 = Q.14,400.00

 Depreciation: Q.16,667.00 (monthly) * 2% = Q.333.34 (monthly) * 3 =

Q.1,000.00