Question

Which of the following represents the correct order in which the indicated budget documents for a manufacturing company would be prepared?

	a.	Sales budget, cash budget, direct materials budget, direct labor budget
	b.	Production budget, sales budget, direct materials budget, direct labor budget
	c.	Sales budget, cash budget, production budget, direct materials budget
	d.	Selling and administrative expense budget, cash budget, budgeted income statement, budgeted balance sheet

Answer 1

The correct order in which the budget documents for a manufacturing company would be prepared-

1. Sales Budget

2. Production Budget

3. Direct materials purchase budget

4. Direct Labour Budget

5. Overhead Budget

6. Selling and Advertisement Expenses Budget

7. Cost of goods manufacturing budget

8. Cash budget

9. Budgeted Income Statement

10. Budgeted Balance sheet

Note - Firstly, sales budget is prepared because all other budgets rely on its information.

Firstly, target sales is assessed. Based on this, it is identified that how much purchases has to be done. Then based on budgeted purchases, material , labour, overhead, selling and administrative expenses budget is prepared. In last, cash budget, then final income is computed and balance sheet is prepared.

Therefore, the correct answer is statement (D) assuming that before selling and administrative expenses budget, all remaining budgets are prepared in sequence.