Direct labour budget

The production budget also provides the starting point for the preparation of the direct labour cost budget. The direct labour hours required to meet production requirements multi­plied by the estimated hourly rate yields the total direct labour cost.

We assume that 5 hours of labour are required per unit of product, and that the hourly rate is 5,000 UAH.

SCHEDULE 4 ALFA Company - 2010 Direct labour budget

	Quarter
	1	2	3	4	TOTAL
Units to be produced direct labour hours per unit
Total needs (hours) Direct labour cost per hour
Total direct labour cost

Factory overhead budget

We assume that total factory overhead is budgeted at 6,000,000 UAH per quarter plus 2,000 UAH per hour of direct labour. All overhead costs involving cash outlays are paid in the quarter in which they are incurred. We should also bear in mind that depreciation does not entail a cash outlay and therefore must be deducted from the total factory overhead we assume that depreciation expenses are 3,250,000 per quarter.

SCHEDULE 5 ALFA Company - 2010 Factory overhead budget

	Quarter
	1	2	3	4	TOTAL
Budgeted direct labour hours Variable overhead rate (UAH)
Variable overhead budgeted Fixed overhead budgeted
Total budgeted overhead
Less: depreciation
Cash disbursements for overhead

ENDING INVENTORY BUDGET

For the ending inventory budget, the variable cost for fin­ished goods must be computed.

SCHEDULE 6

	Unit cost (UAH)	Units	Total (UAH)
Direct materials Direct labour Variable overhead	2 5 2	3 kg 5 hours 5 hours	6 25 10
Total variable manufacturing cost			41

ALFA Company - 2010 Ending inventory

	Unit	Units cost (UAH)	Total (UAH)
Direct materials Finished goods	250 kg 100 units	2 41	500 4,100