 The manufacturing overhead budget is based on data from the production budget. We need to know how many units we're going to produce before we'll know how much overhead that will incur. You can see that the manufacturing overhead budget is the fifth budget completed in the master budget process. A common format is to divide overhead into two classifications, variable manufacturing overhead and fixed manufacturing overhead. Recall that variable costs are shown as per unit costs, whereas fixed costs are shown as total costs. So the manufacturing overhead budget takes the units produced, which comes from the production budget, and multiplies that by the variable manufacturing overhead per unit. This gives us total variable manufacturing overhead costs. We next add the fixed manufacturing overhead costs to that to arrive at total manufacturing overhead costs. Recall that we use the total budgeted manufacturing overhead costs when we determine a predetermined overhead rate. We will use the total direct labor hours from the direct labor budget in order to calculate the predetermined overhead rate per direct labor hour. Here you can see that information from those two budgets. By using total manufacturing overhead and dividing it by total direct labor hours, we can calculate a predetermined overhead rate of $29.98 per direct labor hour for this company. So let's look to see how we would do this in Excel. Notice the column letters and the row numbers will reference those as we build this budget in Excel. Here we have both the production budget and the manufacturing overhead budget. We start by linking the two budgets together by having the units to be produced in the manufacturing overhead budget linked to the same cells in the production budget. Total variable overhead costs, total fixed overhead costs, total manufacturing overhead costs are all formulas as I've shown here. Finally, some of the numbers I've just assumed because I want to keep this example straightforward.