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While it is then logical from a financial perspective to produce as many products as possible, a company also needs to consider realistic sales goals. In many cases, workers can be more efficient, to a certain point, when producing a larger number of goods. In terms of materials, raw material costs will be lower, by volume, the more that a business buys.ĭirect labor is also impacted by volume. The numbers in the example above are impacted by volume. So, if you have 200 units of these finished inventories that have not been sold, your ending finished goods inventory budget would be $23. The total three numbers add up to $115 per unit. It needs information from the operating budget to make a financial budget. It shows the inflows and outflows of cash and other elements of the company's financial position. The other part of the master budget is the financial budget. This budget describes the company's revenues and expenses, which include sales and the finished goods inventory. In order to cover all costs and make profits, the company certainly needs to know how much money is needed to produce each item in a business’ inventory.īusinesses of various scales require an operating budget as one of the two components of the master budget. Not only that, this information is one of the factors required to determine the price of goods to be sold. In fact, these two budgets are necessary to complete a balance sheet. Use this information and data to complete the cost of goods sold budget. The ending finished goods inventory budget is very important for the company because it can provide a value for each unit produced based on raw materials, direct labor and overhead. ‍ Why Do We Need Ending Finished Goods Inventory Budget ? Before producing the products, calculate the basic costs of materials, direct labor costs, and overhead budgets to develop a budget for these goods.

Ending Finished Goods Inventory is the stock of products that are ready for sale but not yet sold.