Script for presentation

PRESENTED BYCOURSE
DATE
The Master Budget
Introduction
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A budget is a financial plan that outlines
expected income and expenses over a
specific period, typically a year.
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According to Eldenburg & Wolcott (2005), a
Master budget is•
A comprehensive plan for the upcoming
accounting period.
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It is usually prepared for one year, and
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It is often based on a series of budget
assumptions
Components of a Master
Budget
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The master budget consists of several subsidiary budgets in
two categories
•
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Operating Budgets
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Financial Budgets
Operating budgets focus on the organization’s day-to-day
operations and performance.
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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
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Revenue Budget:
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Production Budget:
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Forecasting production volume based on
beginning inventory, sales forecasts, and
desired ending inventory levels.
Budgets for Direct Materials, Labor, and
Overhead:
•
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Generated from sales forecast and pricing
plans.
Derived from the production budget.
Budgets for Ending Inventory and Cost of
Goods Sold:
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Utilize data from direct materials, labor,
and overhead budgets.
Master Budget
Components
(Continued)
•
Operating Budget for
Nonproduction Departments
•
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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:
•
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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.
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They are mostly called projected
financial statements
Master Budget Preparation
process
•
•
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Involvement of Various Departments
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Collaboration among different departments like sales,
production, finance, and administration.
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Each department provides input relevant to its functions
for accurate budgeting.
Data Collection and Analysis
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Gathering relevant historical data, market trends, and
other pertinent information.
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Analyzing data to make informed decisions and
projections.
Iterative Review and Revision
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Continuous review and refinement of budget
assumptions and projections.
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Feedback loops and adjustments based on changing
circumstances or new information.
Challenges in Master Budget Preparation
•
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Leadership in Budgetary Process
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Managers provide guidance and direction throughout the budget preparation process.
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They set the tone for collaboration and ensure organizational goals and objectives are
aligned.
Monitoring and Control
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Managers oversee the implementation of the master budget.
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They track actual performance against budgeted targets and intervene as necessary to
address deviations.
Accountability for Social Responsibility Targets
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Managers are responsible for integrating social responsibility targets into the budgeting
process.
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They ensure that financial decisions align with ethical, environmental, and societal
considerations, holding themselves and their teams accountable.
Challenges in Master Budget Preparation
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Uncertainty in Market Conditions
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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
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Balancing cost-cutting measures with ethical considerations, such as fair wages, supplier
relationships, and environmental sustainability.
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Managers face decisions that impact financial performance and social responsibility, requiring
careful deliberation.
Balancing Profitability and Social Responsibility
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Ensuring that financial goals align with broader social and environmental objectives.
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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.