Preparing an Operating Budget—Cost of Goods Sold, SG&A, and Operating Income

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Example of cost of goods sold forecast

In estimating line item expenses, be aware of break-points in production capacity that signal the need for additional outlays. For example, if you currently need 3 people to produce 10,000 orders a month, and you estimate that during the next year sales will increase by 20% to 12,000, at what point will you need to add additional staff to handle the extra volume?


Cost of Goods Sold: Year 2 Budget

  

Actual

Year 1

Year 2 Budget

Rate of Change

Cost of goods sold:

Direct labor

$192,325

$256,500

33.4%

Overhead

$6,755

$7,200

7.0%

Direct materials

$111,000

$119,000

7.2%

Total cost of goods sold

$310,080

$382,700

23.4%

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