Final answer:
In establishing an operating budget, determining the cost structure of the company is the first step. Calculating the total fixed costs, variable costs, and other cost metrics is essential to formulating the underlying financial strategy for the company's budget.
Step-by-step explanation:
When developing a comprehensive operating budget for a manufacturing company, it is critical to perform a detailed assessment of the cost structure first. This assessment involves creating a table that outlines the company's output, total cost, marginal cost, average cost, variable cost, and average variable cost. By analyzing these financial metrics, the firm can make informed decisions on key strategic elements such as the products to produce, the production process, output volume, pricing strategies, and labor requirements.
To begin this process, you will need to calculate the total fixed costs and variable costs to determine the total cost. Additionally, you will calculate the average variable cost, average total cost, and marginal cost using the formulas given in the 'Production, Costs, and Industry Structure' chapter, specifically referenced in Table 8.8.
Establishing a comprehensive cost structure is crucial as it forms the basis of the operating budget. It ensures that there is enough capital to cover all expenses and lays out the financial groundwork that informs subsequent budgeting decisions.