Master Budget

The master budget is also known as The master budget is also known as the financial plan.. Master budgets form the basis of the control systems form the basis of the control systems in organizations. The master budget in organizations. The master budget may take the form of a profit and loss account and form of a profit and loss account and a balance sheet at the end of the a balance sheet at the end of the budget period. It shows the gross budget period. It shows the gross and the net profits and the important and the net profits and the important accounting ratios. Sometimes more accounting ratios.The master budget has two components: the operating has two components: the operating budget and the financial budget. The budget and the financial budget. The operating budget includes the sales operating budget includes the sales budget, cash collections from budget, cash collections from customers, purchases budget, customers, purchases budget, disbursements for purchases, disbursements for purchases, o p eratin g ex p ense bud g ets. operating expense budgets.

‡FIXED BUDGET: Thisis defined as a budget which is designed to remain unchanged irrespective of the volume of output or turnover attained. This budget will, therefore, be useful only when the actual level of activity corresponds to the budgeted level of activity.

7  SALES BUDGET: Sales budget is the most important budget based on which all the other budgets are built up. This budget is a forecast of quantities and values of sales to be achieved in a budget period.

‡ PRODUCTION BUDGET: Production budget involves planning the level of production which in turn involves the answer to the following questions: a.What is to be produced?

b.When is it to be produced?

c.How is it to be produced?

d.Where is it to be produced?

‡FLEXIBLE BUDGET: CIMA defines this budget as one ³ which, by recognizing the difference in behavior between fixed and variable costs in relation to fluctuations in output, turnover or other variable factors such as number of employees, is designed to change appropriately with such fluctuations´.

‡PERFORMANCE BUDGETING: These days budgets are established in such a way so that each item of expenditure is related to specific responsibility centre and is closely linked with the performance of that standard.

‡CAPITAL EXPENDITURE BUDGET: This is an important budget providing for acquisition of assetsnecessitated by the following factors:

a. Replacement of existing assets.

b. Purchase of additional assets to meet increased production

c. Installation of improved type of machinery to reduce

costs.

‡CASH BUDGET: This budget gives an estimate of the anticipated receipts and payments of cash during the budget period. Cash budget makes the provision for minimum cash balance to be maintained at all times.

‡PERSONNEL BUDGET: This budget gives an estimate of the requirements of direct labor essential to meet the production target. This budget may be classified into ±

a.Labor requirement budget

b.Labor recruitment budget

‡RESEARCH AND DEVELOPMENT BUDGET: This budget provides an estimate of expenditure to beincurred on R & D during the budget period. AR&D budget is prepared taking into consideration the research projects in hand and new R & D projects to be taken up.

‡ZERO BASE BUDGETING: The zero basebudgeting is not based on the incremental approach and previous figures are not adopted as the base. Zero is taken as the base and a budget is developed on the basis of likely activities for the future perio

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