Script for presentation

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.