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 in 250 words.

Answer 1

The company uses master budgeting in the following issues;

1) Planning in advance:- It is the main use for which master budget is used by the company. Fitst, how much amount of sales is to be acheived is planned using sales budget, baeed on that how much units are required to be produced is to be planned by using production budget it will be followed by cash budget, overhead and selling and administration budget and last by budgeted incone statment and budgeted bslance sheet.

2) Making decisions:- Master budget is used in making decisions regarding when company wants to invest in capital expenditure, investing in other companies, acquisitions and also for other vital decisions

3) Comparing budgets with actuals:- Master budget figures are compared with actual figures of the resultant financial statment and in case of any differences analysis shall be done by the managing department regarding the reasons for not achieving goals which were set by the top level management.

4) To know divisional budgetory information:- As master budget is the combination of different budgets like sales, production, manufacturing, finished goods etc..division based, we can get the details of all the divisional budgeted summary through master budget.

5) Turn employees towards achieving their goals:- In other words budgets are targeted goals which are to be acheived department wise and division wise. It acts as a motivation to the employeess of different departments towards acheiving the departmental goals.

The following budgets are to be included in the master budget of the company:-

Direct material budget

Direct labour budget

Finished goods budget

Manufacturing overhead budget

Sales budget

Cash budget

Selling and administration expenses budget..etc

All these various types of budgets will be used by their concerned department staff.

For example,

production department staff will use production department budget in master budget.

Sales department staff will use sales department budget in master budget....etc...

But at last the finished master budget which contains all the above mentioned parts or budgets will be used by the accounts department. This department uses the master budget to compare the budgeted figures with that of actuals acheived by the company and performs differentvtypes of analysis to findout the reasons for adverse differences between budgeted and actuals. And taking necessary actions towards non repetation of those differences next time.

This is how various department budgets are used by emoloyees of the company.