The inventory budget is the one that comes immediately after the following budgets:
The reason why these take precedence is that they must be completed to know certain data. The inventory budget helps you see clearly the cashflows related to your inventory.
Through this article, we will explain how you can get the data you need to complete the budget.
A budget is a great tool to help you with the purchasing part of your inventory management.
Free Inventory Budget
What Is an Inventory Budget?
After setting up the other budgets mentioned above, the company has everything it needs to design this next budget.
The inventory budget is used to calculate the unit cost of a product. Then, it becomes simple to calculate the item of stock of finished products at the end in dollars which will be found in the assets of the financial balance sheet of the company. In addition, this allows you to obtain the cost of sales from the forecast income statement.
To do this, it is necessary to multiply the inventories of finished products at the end in units by the unit cost of the product.
As your business grows, it will be more expensive to carry inventory, but you need enough stock to fulfill orders quickly.
Finding the right balance is tough. It’s easy to order too little and miss potential sales, or order too much up and tie up your cash.
Nowadays, the best businesses use real-time inventory control to optimize their inventory management.
You can even use your smartphone to manage your inventory.
Feeling Overwhelmed with Managing Inventory and Sales Orders?
Some businesses may have very simple inventory management needs and may not require the advanced features and functionality offered by inventory software. In these cases, using a manual system or a basic spreadsheet may be sufficient.
On the other hand, businesses with more complicated inventory management needs may find that an inventory software solution is the best option.
inFlow Inventory is the ultimate asset for small and medium-sized businesses. Featuring powerful tools for tracking inventory levels, managing purchase orders, and sales, barcode scanning capabilities, plus reporting & analytics to keep you informed with insights that help you make better business decisions.
Having full control over your stock at all times gives you a competitive edge – both online and offline. Plus never worry about being out of an item again or selling items that are no longer available! All these features can be yours when using inFlow Inventory to manage your goods flawlessly every day without fail.
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You can see our review of inFlow software for more details.
How to Make an Inventory Budget?
Here’s how we put together that budget. Note that this corresponds with the figures found in the other budgets. Thus, when we put a link in reference, you will find yourself more easily among the data to be found.
As with the raw materials budget, it is necessary to establish the unit cost of raw materials. In our example, this is $0.50. This amount depends on your knowledge, industry, and cost data.
You can use an inventory management tool to help you with the process. You can try inFlow inventory for a free 14-day trial.
In addition, you will find the number of raw materials. This is represented by the wording “Raw materials needed per unit” and is equal to 4 in our example. Again, this number comes down to your knowledge and experience relating to your production of a unit.
Now, the direct labor positions must be defined using the direct labor budget. The amount of direct labor is represented by direct labor time per unit which is defined as the time, in hours, required to produce one unit. Then, the direct labor cost is defined using the average hourly rates of the employees. For simplicity, refer to the direct labor budget to understand how to calculate this amount which in our example is equal to $22.68.
Later, you will use the expenses budget to determine the manufacturing overhead cost per hour. As you can see in the image above, the quantity of hours is the same for manufacturing overhead as it is for direct labor hours, because manufacturing overhead is charged to units of product based on direct labor hours. In turn, the manufacturing overhead cost was calculated in the manufacturing overhead budget by dividing the total manufacturing overhead by the direct labor hours budgeted. Thus, we obtain $10 in our example.
As for the stock of finished products desired at the end in units, it was defined in the production budget. In the latter, a line is named “stock of finished products desired at the end” and we keep the number established in the last month. In our example of the production budget, this number is 2000.
Thus, you can get the finished product inventory at the end in dollars and this amount will obtain the finished product inventory line item on the balance sheet, in addition to allowing the calculation of the cost of goods sold at the end. status of the results.
Free Inventory Budget
The Logical Continuation of the Inventory Budget
At this stage you should have completed the Sales Budget, Production Budget, Direct Labor Budget, Expenses Budget, Raw Materials Budget, and now, Inventory Budget.
You must then complete the budget for selling and administrative expenses. This is the last budget to complete before you can start establishing the cash budget.
In short, we hope that these budgets will be useful to you. If you want to go further with your inventory management, you should consider a more sophisticated tool like inFlow inventory software.
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