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

Print this page

Forecasting expected cost of goods sold

view media playerview media player

Key Idea

After defining goals, setting assumptions, and forecasting revenues, the next steps in preparing an operating budget are to estimate costs associated with those revenues (the cost of goods sold and the estimated SG&A).

Production costs including materials, labor, other direct product costs, and manufacturing overhead, are estimated based on units of product or, for a service company, hours of service. Consider the expected sales volume as well as planned changes in inventory. If inventories are depleted at the beginning of the budget period, additional production will be required to bring inventories up to normal levels, increasing total direct production costs. Conversely, excess inventory will be worked off during the period, reducing forecast production costs.

How much will your future products cost?

Click here to exit the program. Warning, this will close your session. You will be able to return to the course, but any evaluation of your progress/performance will not count after you have clicked this button.