Master budget

Июль 27, 2022

Содержание

2. Budget Budget is a quantitative expression for a set time period of proposed future plan of
3. Budgets covering the financial aspects quantify management’s expectations regarding future income, cash flows, and financial position.
4. Well-managed organizations usually have the following budgeting cycle: Planning the organization as a whole as well
5. Investigating variations from plans. If necessary, corrective action follows investigation. Planning again, considering feedback and changed
6. Master budget Master budget coordinates all the financial projections in the organization’s individual budgets in a
7. Operating decisions center on the acquisition and use of scare resources. Financing decisions center on how
8. Pro forma statements The terminology used to describe budgets varies among organizations. For example, budgeted financial
9. The budgeted financial statements of many companies include the budgeted income statement, the budgeted balance sheet,
10. Coordination Coordination is the meshing and balancing of all factors of production or service and of
11. Communication Communication is getting those objectives understood and accepted by all departments and functions.
12. Coordination forces executives to think of relationships among individual operations, departments, and the company as a
13. For coordination to succeed, communication is essential. The production manager must know the sales plan. The
14. Budgets should not be administered rapidly. Changing conditions call for changes in plans. A manager may
15. The most frequently used budget period is one year. The annual budget is often subdivided by
16. Rolling budget Businesses are increasingly using rolling budgets. Rolling budget is a budget or plan that
17. Thus, a 12-month rolling budget for the March 2000 to February 2001 period becomes a 12-month
18. Halifax Engineering is a machine shop that uses skilled labor and metal alloys to manufacture two
19. The only source of revenue is sales of two parts. Non-sales-related revenue, such as interest income,
20. Unit costs of direct materials purchased and finished goods sold remain unchanged throughout the budget year
21. After carefully examining all relevant factors, the executives of Halifax Engineering forecast the following figures for
23. All direct manufacturing costs are variable with respect to the units of output produced. Additional information
26. At the anticipated output levels for the Regular and Heavy Duty aircraft parts, management believes the
28. Our task is to prepare a budgeted income statement for the year 2000.
29. STEPS IN PREPARING AN OPERATING BUDGET
30. Step 1: Revenue Budget Schedule 1: Revenue Budget For the Year Ended December 31, 2000
31. Schedule 1: Revenue Budget For the Year Ended December 31, 2000
32. Step 2: Production Budget (in Units)
33. Schedule 2: Production Budget (in Units) For the Year Ended December 31, 2000
34. Schedule 2: Production Budget (in Units) For the Year Ended December 31, 2000
35. Step 3: Direct Materials Usage Budget and Direct Materials Purchase Budget Schedule 3A: Direct Materials Usage
39. Schedule 3A: Direct Materials Usage Budget in Kilograms and Dollars For the Year Ended December 31,
44. Schedule 3B: Direct Materials Purchases Budget For the Year Ended December 31, 2000
51. Step 4: Direct Manufacturing Labor Budget Schedule 4: Direct Manufacturing Labor Budget For the Year Ended
54. Step 5: Manufacturing Overhead Budget Schedule 5: Manufacturing Overhead Budget For the Year Ended December 31,
57. Step 6: Ending Inventory Budget Schedule 6A: Computation of Unit Costs of Manufacturing Finished Goods in
60. Schedule 6B: Ending Inventory Budget December 31, 2000
63. Step 7: Cost of Goods Sold Budget Schedule 7: Cost of Goods Sold Budget For the
66. Step 8: Other (Nonproduction) Costs Budget Schedule 8: Other (Nonproduction) Costs Budget For the Year Ended
68. Halifax Engineering Budgeted Income Statement For the Year Ended December 31, 2000
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Budget
Budget is a quantitative expression for a set time period

of 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.

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Budgets covering the financial aspects quantify management’s expectations regarding future income,

cash flows, and financial position.
Just as individual financial statements are prepared covering past periods, so they can be prepared covering future periods- for example, a budgeted income statement, a budgeted cash flow statement, and a budgeted balance sheet.

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Well-managed organizations usually have the following budgeting cycle:
Planning the organization

as a whole as well as of its subunits. The entire management team agrees as to what is expected.
Providing a frame of reference, a set of specific expectations against which actual results can be compared.

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Investigating variations from plans. If necessary, corrective action follows investigation.
Planning

again, considering feedback and changed conditions.

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Master budget
Master budget coordinates all the financial projections in the

organization’s individual budgets in a single organizationwide set of budgets for a set time period.
It embraces the impact of both operating decisions and financing decisions.

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Operating decisions center on the acquisition and use of scare resources.

Financing decisions center on how to get the funds to acquire resources.

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Pro forma statements
The terminology used to describe budgets varies among

organizations.
For example, budgeted financial statements are sometimes called pro forma statements.

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The budgeted financial statements of many companies include the budgeted income

statement, the budgeted balance sheet, and the budgeted statement of cash flows.

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Coordination
Coordination is the meshing and balancing of all factors of

production or service and of all the departments and business functions so that the company can meet its objectives.

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Communication
Communication is getting those objectives understood and accepted by all

departments and functions.

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Coordination forces executives to think of relationships among individual operations, departments,

and the company as a whole.
Coordination implies, for example, that purchasing officers make material purchase plans on the basis of production requirements.
Also, production managers plan personnel and machinery needs to produce the number of products necessary to meet revenue forecasts.

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For coordination to succeed, communication is essential.
The production manager must

know the sales plan.
The purchasing manager must know the production plan, and so on.
Having a formal document such as the budget is an effective way to communicate a consistent set of plans to the organization as a whole.

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Budgets should not be administered rapidly.
Changing conditions call for changes

in plans.
A manager may commit to the budget, but a situation might develop where some special repairs or a special advertising program would better serve the interests of the organization.
The manager should not defer the repairs or the advertising in order to meet the budget if such actions will hurt the organization in the long run. Attaining the budget should not be an end in itself.

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The most frequently used budget period is one year.
The annual

budget is often subdivided by months for the first quarter and by quarters for the remainder of the year.
The budgeted data for a year are frequently revised as the year unfolds.
For example, at the end of the first quarter, the budget for the next three quarters is changed in light of new information.

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Rolling budget
Businesses are increasingly using rolling budgets.
Rolling budget is

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.

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Thus, a 12-month rolling budget for the March 2000 to February

2001 period becomes a 12-month rolling budget for the April 2000 to March 2001 period the next month, and so on.
There is always a 12-month budget in place.
Companies also frequently use rolling budgets when developing five-year budgets for long-run planning.

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Halifax Engineering is a machine shop that uses skilled labor and

metal alloys to manufacture two types of aircraft replacement parts- Regular and Heavy Duty.
Halifax manager is ready to prepare a master budget for the year 2000.
To keep our illustration manageable for clarifying basic relationships, we make the following assumptions:

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The only source of revenue is sales of two parts. Non-sales-related

revenue, such as interest income, is assumed to be zero.
Work-in-process inventory is negligible and is ignored.
Direct material inventory and finished goods inventory are costed using the FIFO method.

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Unit costs of direct materials purchased and finished goods sold remain

unchanged throughout the budget year (2000).
Variable production costs are variable with respect to direct manufacturing labor-hours. Variable nonproduction costs are variable with respect to the revenues.
For computing inventoriable costs, all manufacturing costs (fixed and variable) are allocated using a single allocation base- direct manufacturing labor-hours.

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After carefully examining all relevant factors, the executives of Halifax Engineering

forecast the following figures for 2000:
Direct materials:
Material 111 alloy $7 per kilogram
Material 112 alloy $10 per kilogram
Direct manufacturing labor $20 per hour

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