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Master Budget


Master Budget
A master budget is a comprehensive financial plan that consolidates all individual departmental budgets into a single, unified document for an organization. It serves as a central planning tool that outlines the company's expected revenues, expenses, and financial position over a specified period, typically covering one fiscal year.
The master budget includes both operating budgets and financial budgets, providing a holistic view of the organization's financial activities.

Operating Budgets: These budgets detail the income-generating activities of the company and include:
  • Sales Budget: Projects future sales based on historical data and market analysis.
  • Production Budget: Estimates the number of units to be produced to meet sales demands.
  • Direct Materials Budget: Calculates the raw materials required for production.
  • Direct Labor Budget: Estimates labor costs associated with production.
  • Manufacturing Overhead Budget: Projects overhead costs related to manufacturing operations.
  • Selling and Administrative Expense Budget: Details costs related to selling products and managing the business

Financial Budgets: These budgets focus on the overall financial health of the organization and include:
    • Cash Budget: Forecasts cash inflows and outflows to ensure sufficient liquidity for operations.
    • Budgeted Income Statement: Projects revenues and expenses to estimate net income.
    • Budgeted Balance Sheet: Provides an overview of expected assets, liabilities, and equity at the end of the budgeting period.

Purpose of a Master Budget
The primary purpose of a master budget is to provide management with a comprehensive framework for planning, controlling, and evaluating organizational performance. It helps in:
  • Aligning departmental goals with overall corporate strategy by ensuring that all departments work towards common objectives.
  • Facilitating communication among different departments through collaborative input during the budgeting process.
  • Monitoring actual performance against budgeted figures through variance analysis, which allows management to identify areas needing corrective action.

Master Budget Videos

Capital Budgeting

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