Question

Consider where you currently work, where you have previously worked, or a well-known company where you would like to work. How would this company use the master budgeting process? What budgets would be included in their master budget? Which employees would use the various parts of the master budget? Explain.

Answer 1

Budgeting is a very essential and most important part of every organisation. Business budgeting is the most widely used and highest rated management tool of planning and control. Business Budget help managers in developing financial plan to guide them in allocating their resources over a specific future period.

A Budget is a pre determined statement of management policy during a given period which provides a standard for comparision with the results actually achieved. Before using Master Budget any company would like to prepare Functional Budget because preparation of functional budget is the basic requirement of Master Budget.

A Master Budget is a consolidated summary of all the functional budgets. A master budget has two parts:

1) Operating Budget

2) Financial Budget

The master budget is prepared by the Budget Director (or budget officer) and is presented to the budget committee for approval. If approved, it is submitted to the Board of Directors for final approval. The board may make certain amendments/alterations before it is finally approved.