# How To Make A Cost Of Production Budget In A Manufacturing Industry?

Get out your calculator. You need to know;1) Cost of raw material.2) Labor cost.3) Is the cost of the machine used in production amortized into production of material? Or is it posted under capital expense? Same with heat, light and so on. Many companies include these costs in the actual "cost" of the item. Example: Every car that GM makes has it's benefit package paid to retirees is included in their cost of production and their sticker price for the car.
Assume only actual production cost. You take cost of raw material(s), divide by how many units you make from it. Example: You have 100lbs. Of steel bought at \$100. You can make ten wheels from it. Each wheel costs you ten dollars in material. You take the workers wage of \$100 for 10 hours. He can make 10 wheels in 10 hours. Labor cost is \$10 per wheel. Cost =\$10 + \$10 [email protected] cost of production.
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1.Fanaka limited has provided you with the following estimates for the forthcoming period regarding products, costs and sales.
Product        A B
Material required
P(kg) 2 3
Q(Lts) 1 4
Labour hours required
Skilled 4 2
Semi-skilled 2 5
Sales level(units) 2,000 1,500
Opening stock(Units) 100 200
Closing stock of materials and finished goods will be sufficient to meet 10%of demand. Opening  stock of material P was 300 kg and for material Q was 1000L.
Material prices are sh.10 per kg of material P and Sh.7 per litre for  material Q. Labour costs are sh.12 per hour for skilled workers and sh.8 per hour for semi skilled workers.
Required
Prepare the following budgets:
I,Production
ii.Material usage in kg and in Litres (14 marks)
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