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Manufacturing Overhead Budget
Manufacturing Overhead Budget Definition
The manufacturing overhead budget contains all manufacturing costs other than the costs of direct materials and direct labor (which are itemized separately in the direct materials budget and the direct labor budget). The information in the manufacturing overhead budget becomes part of the cost of goods sold line item in the master budget. Also, the total of all costs in this budget are converted into a per-unit overhead allocation, which is used to derive the cost of ending finished goods inventory, and which in turn is listed on the budgeted balance sheet.
This budget is typically presented in either a monthly or quarterly format.
Example of the Manufacturing Overhead Budget
Delphi Furniture produces Greek-style furniture. It budgets the wood raw materials and cost of its artisans in the direct materials budget and direct labor budget, respectively. Its manufacturing overhead costs are outlined as follows:
Delphi Furniture
Manufacturing Overhead Budget
For the Year Ended December 31, 20XX
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | |
| Administrative salaries | $142,000 | $143,000 | $144,000 | $145,000 |
| Administrative payroll taxes | 10,000 | 10,000 | 11,000 | 11,000 |
| Depreciation | 27,000 | 27,000 | 29,000 | 29,000 |
| Freight in and out | 8,000 | 7,000 |
10,000 | 9,000 |
| Rent | 32,000 | 32,000 |
32,000 | 34,000 |
| Supplies | 6,000 | 5,000 | 7,000 | 6,000 |
| Travel and entertainment | 3,000 | 3,000 | 3,000 | 3,000 |
| Utilities | 10,000 | 10,000 | 10,000 | 12,000 |
| Total manufacturing overhead | $238,000 | $237,000 | $236,000 | $237,000 |
The administrative salaries line item contains the wages paid to manufacturing supervisors, the purchasing staff, and logistics planning staff, and gradually increases over time to reflect changes in pay rates. The depreciation expense is relatively fixed, though there is an increase in the third quarter that reflects the purchase of new equipment. Both the freight and supplies expenses are closely linked to actual production volume, and so their amounts fluctuate in conjunction with planned production levels. The rent expense is a fixed cost, but does increase in the fourth quarter to reflect a scheduled rent increase.
Other Manufacturing Overhead Budget Issues
A less-common format for the manufacturing overhead budget is to group the line items into fixed and variable expenses. It can be difficult to determine the fixed or variable status of a cost, in which case you can add a third cost grouping for mixed costs.
In a simplified budgeting environment, the overhead budget may be as simple as an overhead rate that is multiplied by some form of activity, such as direct labor hours or machine time used. This approach is generally not recommended, since it does not reveal the precise nature of the various types of expenses incorporated into the overhead rate.
It is not customary to include a cash requirements calculation as part of the manufacturing overhead budget. Instead, the cash requirements are calculated for all of the revenues and expenditures of a business as a whole, and are then summarized on a separate page of the budget.
Similar Terms
The manufacturing overhead budget is also known as the manufacturing budget, the factory overhead budget, and the overhead budget.
Related Topics
Budgeted balance sheet
Budgeted income statement
Cash budget
Direct labor budget
Direct materials budget
Ending finished goods budget
Master budget
Production budget
Sales budget
Selling and administrative expense budget