What is a Purchases Budget?

We need to work backwards from estimated sales to determine the purchases required.

It is important to include the existing supplies of inventory (opening inventory) and the required ending inventory.

This is the format of the purchases budget.

Purchases is part of Cost of Goods Sold or COGS on the Income Statement.

For a manufacturer the budgeting process is more complicated. Raw materials must be purchased to be used in the production process.

Production must be forecast from the sales budget to understand the required amount of raw materials that need to be purchased.

Here is an example of a production budget produced from forecasted sales figures.

production budget

This is the finished result.

production budget

Now we have the production requirement we can work out the purchases of raw materials that go into the production process.

In this unrelated example the manufacturer requires 2 litres of milk for each unit of production of chocolate.

Here is the Manufacturer’s Purchase Budget.


Back to Management Accounting Questions and Answers
Skip to toolbar