Manufacturing overhead budget

Definition

A manufacturing overhead budget estimates the expected costs related to production that are not directly tied to materials or labor. It includes indirect costs such as utilities, depreciation, and maintenance.

5 Must Know Facts For Your Next Test

1. Manufacturing overhead encompasses all indirect production costs.
2. It is essential for accurately determining product costs and setting prices.
3. Typically includes expenses like factory rent, utilities, and equipment depreciation.
4. Helps in planning for cash flow needs and managing expenses.
5. Integral part of the master budget and aligns with the production budget.

Review Questions

• What types of costs are included in a manufacturing overhead budget?
• Why is a manufacturing overhead budget important for setting product prices?
• How does the manufacturing overhead budget relate to the master budget?

Related terms

Direct Materials Budget:

An estimate of the raw materials required for production within a specific period.

Direct Labor Budget:

A forecast of the labor hours needed to meet production goals.

Master Budget:

A comprehensive financial plan that integrates all individual budgets related to sales, production, and other operations.