Budgeting

Purchases and Labour Budgets

Purchases budget — in units

Same structure as the production budget but for materials:

Purchases (units) = Production units + Closing material inventory − Opening material inventory

Purchases budget — in £s

When the gross profit margin (GPM) is given:

Cost of sales = Revenue × (1 − GPM%)
Purchases (£) = Cost of sales + Closing inventory (£) − Opening inventory (£)

Or using markup:

Cost of sales = Revenue ÷ (1 + markup%)

Labour budget

Example

• Production: 520 units; each requires 2 hours → 1 040 hours required
• 10 workers × 110 hours each → 1 100 hours available
• Surplus: 1 100 − 1 040 = 60 hours

If hours required > hours available → need additional workers (round up to whole workers).

Key linkages

Sales budget → Production budget → Purchases budget
                    ↓
               Labour budget