The direct materials purchases budget, direct labor cost budget, and factory overhead cost budget are the starting point for preparing the cost of goods sold budget. The desired ending inventory and the estimated beggining inventory data are combined with these data to determine the budgeted cost of goods sold.
    To illustrate, an example of a cost of goods sold for the company Colt Manufacturing, Inc. is shown in the following table and is based on the following work in process and finished goods inventories:

           Estimated inventories on January 1, 2008:                        Desired inventories on December 31, 2008:
                Finished goods      $1,095,600                                                  Finished goods        $1,565,000
                Work in process      $214,400                                                   Work in process        $220,000

Colt Manufacturing, Inc.   Cost of Goods Sold Budget For the Year Ending December 31, 2008
.
Finished goods inventory, January 1, 2008			1,095,600
Work in process inventory,January 1, 2008.		214,200
Direct materials:
Direct materials inventory,
January 1, 2008 (Note A)	99,000
Direct materials purchases (from Direct Materials budget)	2,587,500
Cost of direct materials available for use	2,686,500
Less direct materials inventory
December 31, 2008 (Note B)	104,400
Cost of direct materials placed in production	2,582,100
Direct labor (from Direct Labor budet)	4,851,600
Factory overhead (from Overhead budget)	2,089,080
Total manufacturing costs		9,522,780
Total work in process during period		9,737,180
Less work in process inventory,
December 31, 2008		220,000
Cost of goods manufactured			9,517,180
Cost of finished goods available for sale			10,612,780
Less finished goods inventory,
December 31, 2008			1,565,000
Cost of goods sold			$9,047,780

    
                                 NOTE A:    Leather:          18,000 sq. yds.  X  $4.50 per sq. yd.  $81,000
                                                    Lining:             15,000 sq. yds.  X  $1.20 per sq. yd.  $18,000
                                                            Direct materials inventory,
                                                            January 1, 2008                                                 $99,000

                                 NOTE B:     Leather:          20,000 sq. yds.  X $4.50 per sq. yd.   $90,000
                                                     Lining:             12,000 sq. yds.  X $1.20 per sq. yd.  $14,400
                                                            Direct materials inventory,
                                                            December 31, 2008                                         $104,400