Manufacturing overhead budget
Manufacturing overhead budget plans every factory cost that is not direct materials or direct labour.
Also known asoverhead budget
FrameworkMaster budgeting
See it move
The infographic is a stacked bar with two segments: fixed overhead of €30,000 and variable overhead of €24,000, combining to give total budgeted overhead of €54,000. The variable portion is derived from a rate of €3 per machine hour applied to 8,000 budgeted machine hours. The visual separation of the two segments shows that fixed overhead remains constant regardless of output while variable overhead scales proportionally with activity.
The formula
Variables
- Variable overhead rate per unit of activity (€ per unit)
- Planned (budgeted) activity level (hours / units)
- Budgeted fixed manufacturing overhead for the period (€)
Variable and fixed components are estimated separately and summed to give total budgeted overhead.
Check yourself
Osterfield Ltd budgets production of 4,000 units next quarter. Its variable overhead rate is €3 per unit and budgeted fixed overhead is €18,000. A flexible budget is then prepared for actual production of 5,000 units. What total manufacturing overhead should appear in that flexible budget?