Master Budget

Definition and Role of Budgets A budget is a quantitative expression for a set of time period of a proposed future plan of action by management It can cover both financial and nonfinancial aspects of these plans and acts as a blueprint for the company to follow in the upcoming period Budget A comprehensive, organizationwide set of budgets It coordinates all financial projections in the organization’s individual budgets in a single organizationwide set of budgets for a set time periods It embraces the impact of both operating decisions and financing decisions Master Budget

Budgeting Process Planning the performance of the organization as a whole as well as its subunits Considering feedback and changed conditions Providing a set of expectations against which actual results can be compared Investigating variations from plans

Advantages of Budgets Budgets are a major feature of most management control systems. When administered intelligently, budgets compel planning includes the implementation plans provide performance criteria Promote communication and coordination within the organization

Strategic Analysis in the Formulation of Long-Run and Short-Run Budgets Long-Run Planning Long-Run Budgets Strategy Analysis Short-Run Planning Short-Run Budgets

Periodic Budget and Rolling Budget A budget prepared for a specified period of time, usually one year. As each budget period ends, the organization prepares a new budget for the next one. Rolling Budget A budget or plan that is always available for a specified future period by adding a month, quarter, or year in the future as the month, quarter, or year just ended is dropped .

Budget Practices Around the Globe S U R V E Y S OF C O M P A N Y P R A C T I C E Budget Practices Around the Globe 1. Percentage of firms that prepare a complete master budget 91% 78% 1 2 3 93% 67% 3 2 1 95% - 100% - 100% 82% - 2. Percentage of firms reporting division manager participation in budget committee discussions 3. Ranking of the most important budget goals for division manager (1=most important) Return on investment Operating income Sales revenues

Operating Budget and Financial Budget Budgeted income statement and its supporting budget schedules. Financial Budget The part of master budget that comprises the capital budget, cash budget, budgeted balance sheet, and budgeted statement of cash flows.

Steps in Preparing an Operating Budget Step 1 : Revenue Budget Step 2 : Production Budget (in Units) Step 3 : Direct Materials Usage and Purchases Budget Step 4 : Direct Manufacturing Labor Budget Step 5 : Manufacturing Overhead Budget Step 6 : Ending Inventory Budget Step 7 : Cost of Goods Sold Budget Step 8 : Other(Nonproduction) Costs Budget Step 9 : Budgeted Income Statement

Overview of the Master Budget for Halifax Engineering