Module 7 • Control


3 Direct materials budget This budget will indicate the materials needed in the production process. There must be sufficient raw materials to meet production needs and to ensure the desired “ending raw materials inventory.” Some of the raw materials will already be available in the “beginning raw materials inventory” and the rest must be purchased. It can be calculated as follows:


Raw materials needed for production + desired ending inventory of raw materials – beginning inventory of raw materials = raw materials to be purchased


3 Direct materials budget Units to be produced


Raw materials to meet production (metres) Plus desired ending inventory Less opening inventory Total material needs


Cost of raw materials (R75 / m) 4 Direct labour budget


Direct labour requirements must be determined so that the company will know if you have enough workers (sufficient labour time) to meet the production needs. If you, as manager, know in advance what will be needed in labour time during the budget year, you can develop plans to adjust the labour force according to the situation. If you fail to do this, you run the risk of having labour shortages or having to hire or fire workers at awkward times. The direct labour cost is determined as follows:


Units to be produced × direct labour time per unit (hours) = total hours of direct labour time needed × direct labour cost per hour = total direct labour cost


4 Direct labour budget Units to be produced


Direct labour time per unit (hours) Total hours of direct labour needed Labour cost per hour Total direct labour cost


210


105m 10m 5m


110 m R8250 3 This figure was


determined in the production budget


210 1½


315 R20


R6 300 4


Perhaps it would be better to work in minutes: 1.5 hours = 90 minutes


125


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