Using the direct material usage budget, direct material purchase budget, direct material labor costs budget, manufacturing overhead budget and ending inventory budget, prepare a cost of goods sold budget. The process to compute this cost is as follows:
Direct materials used + Direct manufacturing labor + Manufacturing overhead costs = cost of goods manufactured
Beginning finished goods inventory + cost of goods manufactured = cost of goods available for sale
Cost of goods available for sale – ending finished goods inventory = cost of goods sold.
Next: Preparing the Non-manufacturing Costs Budget.