The Operating Budgets: Direct Labor and Overhead Budgets

The direct labor budget is simpler than the production or purchases budgets because there is no beginning or ending inventory of labor. As a result, the labor budget is simply the budgeted units produced times the number of direct labor hours per unit. This can be expressed in dollars by multiplying the total hours needed times the wage rate. Suppose that a company budgeted monthly production in the first quarter of 9,600, 12,100, and 13,050 units. Each unit takes 15 minutes of direct labor time and the average wage rate is $18 per hour. Prepare a direct labor budget by month and in total for the first quarter of the year. (Round your DLH per unit to two decimal places and round total direct labor hours to the nearest hour.)

	January		February		March		Total
Units to produce
Direct labor hours per unit
Total direct labor hours
Wage rate
Direct labor cost	$		$		$		$

The overhead budget is very similar to the direct labor budget. It can be as simple as a list of overhead costs, or it can separate variable from fixed overhead. If variable overhead is based on direct labor hours, then the overhead budget will be done after the direct labor budget is complete. Suppose that a company budgeted monthly direct labor hours in the first quarter of 2,400 hours, 3,025 hours, and 3,263 hours. The variable overhead rate is $3.20 per direct labor hour. Fixed overhead is $3,800 per month. Prepare an overhead budget for the first quarter of the year by month and in total. (Round overhead rate to two decimal places and round all dollar amounts to the nearest dollar.)

	January		February		March		Total
Total direct labor hours
Variable overhead rate
Budgeted variable overhead
+ Budgeted fixed overhead
Total budgeted overhead	$		$		$		$

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The Operating Budgets: Marketing and Administrative Expense Budgets

The marketing expense budget can be prepared in much the same way as the overhead budget. That is, variable expenses and fixed expenses are budgeted and then totaled. Suppose that a company has variable marketing expense consisting of a sales commission equal to 5% of sales revenue. Sales revenue for the first three months of the quarter equals $560,000, $580,000, and $600,000. Fixed marketing expense consists of the following monthly costs: depreciation $3,500, salaries $12,000, and advertising $5,000. Prepare a marketing expense budget for the first quarter, by month and in total.

	January		February		March		Total
Budgeted sales revenue
Sales commission rate
Budgeted variable marketing expense	$		$		$		$
Fixed marketing expense:
Depreciation	$		$		$		$
Salaries
Advertising
Budgeted fixed marketing expense
Total budgeted marketing expense	$		$		$		$

The administrative budget is typically a listing of line item administrative costs and the expected amounts. Administrative costs do not vary with units produced or sold, nor with direct labor hours, so they are strictly fixed. Suppose a company has the following administrative expenses per month: salaries $21,000, depreciation $8,500, insurance $2,400, and training $1,000. Prepare an administrative expense budget for the first quarter, by month and in total.

	January		February		March		Total
Salaries	$		$		$		$
Depreciation
Insurance
Training
Total budgeted administrative expense	$		$		$		$