How to Plan a Budget for Your Manufacturing Company

Preparing an accurate budget is an essential part of maintaining your manufacturing company’s profitability. In addition to giving you a reference for your company’s financial performance, your budget helps you set prices, increase efficiency and plan for future growth.

Both large and small manufacturers benefit from improved budgeting methods. Learn more about manufacturing budgets and strategies below.

Manufacturing/Production Budget Format

A manufacturing budget is a document that details the costs associated with producing an estimated number of product units. Though what you include in your budget will depend on your business model and individual needs, it will typically consist of two main parts: a production budget and an overhead budget. 

What Goes Into a Manufacturing Company’s Production Budget?

Your company’s production budget accounts for all the direct costs associated with producing a specific product. This includes the cost of raw materials and direct labor that goes into making the product. 

Examples of raw materials that a manufacturing company may use in developing a product include: 

• Plastic 
• Steel
• Grain 
• Lumber
• Oil 

Direct labor covers all employees who played a role in developing, planning or making a product. Some examples of direct labor include: 

• Assembly line employees 
• Delivery truck drivers 
• Machine operators 

To calculate direct materials costs, multiply the total cost of materials for one unit by the number of units to be produced. To calculate direct labor costs, estimate the number of labor hours needed to produce one unit and again multiply this by total units.

What Goes Into a Manufacturing Company’s Overhead Budget?

Your company’s overhead budget accounts for all the indirect costs associated with operating your factory for the duration of production. Indirect labor costs include anything that falls outside of paying for materials and direct labor. 

Manufacturing Budget Examples of Overhead Costs include:

• Power and utilities
• Machine maintenance and purchasing
• Marketing and rent (If applicable)
• Salaries, wages and benefits for indirect manufacturing employees and staff 

In addition to overhead and production costs, your budget should incorporate information that helps you understand how your company is doing financially. Cash flow statements, profit margins and estimated tax liability are all important to consider.