Well, we proceed. We're steps in preparing Operating Budget. And now, we will deal with direct manufacturing labor, cost and then later with manufacturing overhead. Now, we start out with schedule four, which is the Direct Manufacturing Labor. Now, from here, we will be able to come up with a very important cost allocation rate. But, we start in a simple way. So, we have two kinds of spare parts r and hd. Yes and here, units from schedule to 7,000 and 1,200. Direct manufacturing labor in hours, three and four, when multiplied get 21,000 and 4,800. The rate is the same of 30 per hour. These numbers that add up to seven seven four. These are the costs of direct manufacturing labor. The total number of hours here is 25,800. That's an important number that we'll use in just a moment. From here, we are done with the components of direct costs. We dealt with direct materials and we dealt with direct manufacturing labor. Now, it's time to go ahead and start analyzing our indirect costs. We start with manufacturing overhead. Again, in our initial data, in panel D5, we had this laid down. Here, I will not redo that. You can easily go back to that part, I will not flip over many of these pages. But, our schedule five in a compressed form will look like this. We have variable costs of 670 and fixed of 362, and the total manufacturing overhead of $1,000,032. Now, the key story is that total manufacturing overhead is allocated based on the cost allocation base which is direct manufacturing labor. So, we take this amount of hours used and this is the cost. By dividing this by that we get the cost allocation rate of $40 per hour. That means that for any batch, any part, any piece, we will allocate the corresponding amount of manufacturing overhead based on the amount of direct labor going into this. To illustrate that, we'll flip over and go to ending inventory budget, named schedule six A, unit cost of Finished Goods Inventory. Now, again, this is a very simple table that consists of, this is R and HD, and we have inputs. Inputs are material one and kilograms and the amount is $88. Material two and kilograms $50. Direct material labor, three the rate is 30, so it's 90. So, the first three lines of that, we could have easily done earlier. But, now, we have the four very important line because this is manufacturing overhead allocated to these pieces. Namely, we know that the rate is $40 per hour. So, we take the same base of three hours to produce R, then multiply by this rate and I would say that, four any R, goes 120 of manufacturing overhead. By the same token, on any HD, we allocate about 60. That leads to the total unit costs of 348 and 456. The interesting observation that you can easily make if you look back on your computer screen or the handouts, you would see that these numbers we've already seen before in an indirect form. Namely, in our schedule or better to say in our panel D3, we saw the ending inventories in dollars and that was 34,800 for 100 pieces. Then, another amount for 50 of the remainder of HD. So, that is important to see consistency. These numbers are the same as shown up in D three. For example, we would like to redo all these, to change the inputs, and then to re-prepare, redo all these things; then, you have to make sure that you're redoing would be consistent with the previous page calculation of cost allocation rate and corresponding unit cost of finished goods inventory. So far, so good. Now, we go to schedule six B which is Ending Inventory of both direct materials and finished goods. Here, we put some numbers and physical amounts namely material one. So, this is 9,000 from panel D four and then 3,000 from the same panel. Costs stay the same, eight and 10 and these other numbers, the total of 102. What is more important for us, this is the ending, in terms of a finished goods. Now, we have R and HD from D three. This is you'll have a 150. Then here, we multiply by the unit cost that we have just calculated on the previous page of this flip chart. That leads us to 382,800, and 22,800. Together, that gives us this blue number. The total cost of any inventory are 405,600. Again, you can say, well, some of these numbers don't seem to be directly applicable to certain things, but there is someone who is also overseeing the finished goods inventory. For these people, it's very important to know these costs because if they just do a physical check and if something doesn't, in effect, meet here, that might be a problem. So, all these pieces of information are important to a different extent with respect to different people. But, there are some people for whom this information is very important in a very direct way.
