Discussion Week 3

Page 1 of 1 Accounting III

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Direct Materials Budget Direct Materials Budget. There are several budgets that depend on other budgets. So, it is important to have strong estimates that can be relied upon. Once we have the production budget, we can then figure out how much we need in direct materials and direct labor. Once we have that, we can have our cost of goods sold projections which will lead us finally to our different budgeted financial statements. The direct labor budget shows us how many hours are required to meet the production budget and the affiliated cost. The manufacturing overhead budget calculates all other cost of production that the direct materials budget and the direct labor budget do not. It converts these cost to cash in preparation of the overall cash budget and cash disbursements section. Once we get through the many different budgets in a company, we are prepared to put together a cash budget. We have already discussed the cash receipts part of the budget and cash disbursements part and now need to look at the complete cash budget and the other parts. Basically, in this cash budget, we are looking at all of our inflows and then deducting our required outflows of cash and then calculating whether we need to borrow or not from a lender to cover any shortages or whether we are able to pay back any prior borrowings.