Understanding Production Budget Essentials
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ScribdTranslationsUnderstanding Production Budget Essentials
Translated by
ScribdTranslationsPRODUCTION BUDGET
Thebudgetproduction is the document through which the level of is anticipated
manufacturing ofstocksor provision of services.
The production budget is a fundamental part of thebudgetglobal of
a company. Without the production budget, it is practically impossible for a
organization commercial o industrial to carry a cable sus objectives.
An effective and efficient production budget will allow the leaders of a
companies to know what is being manufactured and if the results achieved match with
the expected. The nature and characteristics of the production budget
we will explain below.
What is the production budget?
The production budget is closely linked to thebudget of
salesWell, without him it would be impossible to know how much a company is going to try to sell.
in a certain period.
The production budget refers to the process of creating or manufacturing items by
part of a company in the budgeted period and under specific conditions.
The production budget converts the sales volume into units of
manufacturing. With it, it is possible to calculate the necessary costs to achieve sales
desired and the planned benefits. Indicate the number of units that should be produced
the company in a specific period to achieve the budgeted sales.
What are the characteristics of the production budget?
To carry out ain budget of efficient production, a company must have in
it accounts for a series of factors:
The staff available to create the product.
Theprofit marginsought.
The time required to carry out the production (hours of work).
The hourly rate.
There is a general formula for carrying out the production budget.
It concerns production budget (units) = sales budget +
planned final inventory - initial inventory.
The individuals responsible for preparing the production budget in a company are
the production managers, who are to manage both the work performed by the
employees like the necessary materials to make the planning a reality
previously developed. Production managers are also responsible for,
usually, of theinventory controland warehouse management.
The production budget, in turn, must include several elements: budgets for
materials,company purchaseslabor, manufacturing expenses and thecosts
operationalof the company.
The materials budget refers to the raw materials that will be
necessary to carry out production. To obtain this raw material it will be
necessary to buy it, the cost of which is analyzed in the purchasing budget. This type of
The budget should also inform about the dates on which it should take place.
delivery of the acquired raw materials.
Regarding the labor budget, they are the necessary workers.
to execute the planned production. The manager must also have, in
it counts the distribution of personnel in the different stages of production.
On the other hand, the manufacturing expense budget must include both
indirect costs, like direct ones, that are charged to the cost of the product.
Indirect expenses are those that cannot be attributed directly.
to the costs of a merchandise as they correspond to the production process of
various products or to different departments.
Finally, the production cost budget includes the expenses attributable to
the whole process.
BENEFITS OF A GOOD PRODUCTION BUDGET
A good production budget can bring many benefits for
the company if executed properly, taking into account the factors that will
intervene at the time of executing internal processes:
[Link] helps to fulfill thegeneral objectives propuestos,
as long as they are measurable and quantifiable.
[Link] unnecessary production costs.
3. Make better use of the workers' capacity and experience.
4. Helps to manage inventories more intelligently and accurately.
Attracts more qualified labor.
Achieve greater efficiency throughout the process.
7. Promotes job stability.
DETAILED BUDGET:
The detailed budget is one of the most important guidelines for a project.
based on the scope, in addition to thedesign inset of plans and specifications,
covers all the project's activities with their material costs, labor, and
subcontracts. With the previous parameters, a precise estimate can be given of
project cost.
A detailed budget must include:
Geometric Analysis: It means the study of theconstruction plansthat is the
determination of the quantity of volumes and finishes in the work (computations
metrics, unit price analysis.
Strategic Analysis: It is the definition of how it will be executed, managed and
will coordinate the construction of the work or its development. This generates
certain activities that need to be carried out, but that are not found in the
construction plans, however, all these activities come at a cost in terms of
what the budget of the work represents.
Environment Analysis: Definition and valuation of costs not related to execution
physics of activities or their management and control, but rather of requirements
professionals, whether market or government costs such as: public services,
environmental impact mitigation work, occupational safety, etc.
Parts of a detailed budget:
Every detailed budget must include the necessary activities to
complete the work for which he was hired, with greater precision in the
breakdown of activities greater control can be had over the work and the spending in which it
incur. But any detailed budget, regardless of the size of the project, must
always consider the following items:
Direct costs: Direct costs are those expenses that are directly
related to the project and can be identified, measured, and controlled with
precision. In a project, direct costs refer to materials and labor.
works that are applied directly and exclusively in the execution of the project
in question. An example of direct cost would be the amount of materials and labor.
work required to construct a pedestrian sidewalk.
Indirect costs: These are the costs that help the company to carry out its
daily activities, but they cannot be easily tracked. Thus, those
costs cannot be linked to a specific project or service.
Examples of indirect costs include:
Rent
[Link], electricity, telephone, internet
3. Security and property cleaning service
4. Machine maintenance
5. Master builder and warehouse clerk
6. Insurance
Fixed costs: They are those that do not alter the value, regardless of the
project duration. Let's imagine that your company is working on a project
in a public street and would like to run an advertising campaign spreading the
benefits of the work. Their spending on that advertising campaign is a fixed cost, since
does not go a change if there is a delay in the delivery of the work.
Variable costs: Variable costs will vary relative to the units used.
during the project. Using the same example of the work on a public road, if your
The company needed to rent a machine to carry out part of the work, and there would be a
delay, the costs for renting that machine will increase. Similarly, if
the work finishes before the expected deadline, its expenses with the rental of the machine
will decrease.
Per diem, mileage, and zoning: These expenses usually apply to projects that
they are carried out outside the large metropolitan area. In simple words, it should
cancel the employees' costs for transportation, food, and stay at the
workplace. In cases where there is little labor, it is customary to
rental of a house in the area and hiring staff from the GAM to work
Outside, where as part of the incentive, food and transportation are paid for.
It should be emphasized that if labor is hired in the project area, it should not
to pay this.
Utility: Every construction budget must include the utility for which the company is going.
to offer the services, this can be agreed upon before starting the work by the client and
the developer or use an additional percentage of the total cost of the work.
Contingencies: This is an item that should be taken into account since it is used for
cover unforeseen eventualities in the preparation of the plans. An example
It could be that during the excavation for the foundations the level appears.
unconfined groundwater in the soil study.
For your budget to be successful, it should:
[Link] the databases of materials.
2. Having various suppliers to create competition and reduce costs.
3. Plan or create a work schedule to establish the timelines for
construction and thus calculate the human resources and equipment or tools to
to use.
PRODUCTION BUDGETS
BASE EXAMPLE
Units to sell 2,000
Final Inventory 300
Total needs 2.300
Initial Inventory 500
Units to produce 1.800
P.P = Units to sell (+;-) Inventory Variation
ID #
MORITA SAS
PRODUCTION BUDGET
FOR THE YEAR ENDING DECEMBER 31, 2020
TRIMESTRE 1 TRIMESTRE 2 TRIMESTRE 3 TRIMESTRE 4 TOTAL
Units to sell 4,000 5,000 6.000 7,000 22,000
Final Inventory 400 500 600 700 700
Total Needs 4.400 5,500 6.600 7.700 22,700
Initial Inventory 200 400 500 600 200
Units to produce 4.200 5.100 6,100 7.100 22,500
Verification 22,500
INITIAL INVENTORY 200
METAL FURNITURE LTD
You need to create quotes for metal tables and metal chairs for the year 2020, and establish the following policies:
a. Ventas:
Metal table 12000
Metal chair 48000
b. % distribution of sales:
First Quarter: 10%
Second Trimester: 25%
Third Quarter: 20%
IV Quarter: 45%
c. Levels of finished product inventory:
Product I Initial I Final
Metal table 600 700
metal chair 1200 2000
d. Policies on finished product inventories:
Metal table 10% from the sales
Metal chair 20% of the period
SALES BUDGETS
Detail First Quarter Second Quarter
Third Quarter IV Quarter Total
% Distribution 10% 25% 20% 45% 100%
Metal table 1200 3000 2400 5400 12000
metal chair 4800 12000 9600 21600 48000
PRODUCTION BUDGETS
Detail First Quarter Second Quarter Third Quarter IV Quarter Total
METAL TABLE
I Final 120 300 240 700 700
Sales 1200 3000 2400 5400 12000
Needs 1320 3300 2640 6100 12700
I Initial -600 -120 -300 -240 -600
Production 720 3180 2340 5860 12100
METAL CHAIR
I Final 960 2400 1920 2000 2000
Sales 4800 12000 9600 21660 48000
Needs 5760 14400 11520 23660 50000
I Initial -1200 -960 -2400 -1920 -1200
Production 4560 13440 9120 21740 48800
e. MP Requirements
MP Metal table Metal chair Unit Price
The Sheet 1.5 meters 0.5 meters $ 12,000.00
MP B Tubo 2.5 m 1.5 meters $ 3,500.00