Description PRESENTED BY COURSE DATE The Master Budget Introduction • A budget is a financial plan that outlines expected income and expenses over

Description

PRESENTED BY
COURSE
DATE
The Master Budget
Introduction

A budget is a financial plan that outlines
expected income and expenses over a
specific period, typically a year.

According to Eldenburg & Wolcott (2005), a
Master budget is•
A comprehensive plan for the upcoming
accounting period.

It is usually prepared for one year, and

It is often based on a series of budget
assumptions
Components of a Master
Budget

The master budget consists of several subsidiary budgets in
two categories


Operating Budgets

Financial Budgets
Operating budgets focus on the organization’s day-to-day
operations and performance.

They help plan and control production, sales, and
administration activities.

Financial budgets deal with the organization’s financial
resources and activities.

They provide insights into the financial health and stability
of the business.
Developing a Master
Budget

Developed using a set of
assumptions.

Assumptions are plans and
predictions on the next period’s
operating activities.

Sales forecasts and pricing plans
are some common assumptions
to be made.
Master Budget
Components

Revenue Budget:


Production Budget:


Forecasting production volume based on
beginning inventory, sales forecasts, and
desired ending inventory levels.
Budgets for Direct Materials, Labor, and
Overhead:


Generated from sales forecast and pricing
plans.
Derived from the production budget.
Budgets for Ending Inventory and Cost of
Goods Sold:

Utilize data from direct materials, labor,
and overhead budgets.
Master Budget
Components
(Continued)

Operating Budget for
Nonproduction Departments


Includes costs for departments
such as sales, human resources,
research and development, and
general administration.
Cash Budget:

Projects expected operating cash
receipts and disbursements.

Incorporates planned capital
expenditures and long-term
financing.
Master Budget
Components
(Continued)

Short-term Financing Budget:


Developed based on cash budget
and financial needs.
Budgeted Financial Statements:

Components of all preceding
budgets are combined to create a
budgeted income statement,
balance sheet, and cash flow
statement.

They are mostly called projected
financial statements
Master Budget Preparation
process



Involvement of Various Departments

Collaboration among different departments like sales,
production, finance, and administration.

Each department provides input relevant to its functions
for accurate budgeting.
Data Collection and Analysis

Gathering relevant historical data, market trends, and
other pertinent information.

Analyzing data to make informed decisions and
projections.
Iterative Review and Revision

Continuous review and refinement of budget
assumptions and projections.

Feedback loops and adjustments based on changing
circumstances or new information.
Challenges in Master Budget Preparation



Leadership in Budgetary Process

Managers provide guidance and direction throughout the budget preparation process.

They set the tone for collaboration and ensure organizational goals and objectives are
aligned.
Monitoring and Control

Managers oversee the implementation of the master budget.

They track actual performance against budgeted targets and intervene as necessary to
address deviations.
Accountability for Social Responsibility Targets

Managers are responsible for integrating social responsibility targets into the budgeting
process.

They ensure that financial decisions align with ethical, environmental, and societal
considerations, holding themselves and their teams accountable.
Challenges in Master Budget Preparation



Uncertainty in Market Conditions

Fluctuations in market demand, competitive pressures, and economic conditions can
challenge accurate forecasting.

Managers must anticipate and adapt to changing market dynamics to minimize the impact
on budgetary targets.
Ethical Dilemmas in Cost Management

Balancing cost-cutting measures with ethical considerations, such as fair wages, supplier
relationships, and environmental sustainability.

Managers face decisions that impact financial performance and social responsibility, requiring
careful deliberation.
Balancing Profitability and Social Responsibility

Ensuring that financial goals align with broader social and environmental objectives.

Managers must navigate the tension between maximizing profits and fulfilling corporate social
responsibilities, finding synergies where possible.
References

Eldenburg, L., & Wolcott, S. K. (2011). Cost management: Measuring,
monitoring, and motivating performance. John Wiley.

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