Nathan is working on the operating budgets for his company. He has already done the sales and production budgets, and he is now working on the direct materials, direct labor, and manufacturing overhead budgets. He decides to do the direct labor budget first, then the manufacturing overhead budget, then the direct materials budget. Do you think this is an appropriate way to prepare the budgets

Question

Khloe Burton

Business

26 July, 00:45

Nathan is working on the operating budgets for his company. He has already done the sales and production budgets, and he is now working on the direct materials, direct labor, and manufacturing overhead budgets. He decides to do the direct labor budget first, then the manufacturing overhead budget, then the direct materials budget. Do you think this is an appropriate way to prepare the budgets

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Lena Alvarado · Answer 1

Yes that is an appropriate way ti prepare an operating budget.

Explanation:

An operating budget is a financial statement that reflects reflects operating activities and its cost implications.

It outlines other budgets like ending fines the financial plan for each operating sub sector such as sales, production, direct labor, manufacturing overhear, etc. for a particular period.

Nathan's method of preparing the operating budget for his company is appropriate because he is following the correct sequence.

To prepare an operating budget, the sales and production budgets are captured first, followed by direct materials, direct labor, manufacturing overhead, direct labor, direct materials and other other additional budget before the budgeted income statement is prepared.