Question

Read Case 13-4. How would a master budget support the three objectives of planning, directing and control for Domino's?

Answer 1

The Master Budget is a strategic planning device used by management to coordinate its operations and monitor the different agencies thereof. A review of the corporation's results is mandatory for the senior management.

A master budget will help the company well in planning, directing, and controlling its financial activities. A master budget tends to keep track of the lowest expenses as it contains the primary resources, labour, and depreciation within the operational budget. Also, Domino's boasts minimal capital expenditures, and both are reported on the master budget. With any of the bigger more costly capital assets such as leases more electricity, the organization will use the master budget to report the spending estimates. Having a master budget also helps Domino's to determine how the business worked over the planning period of the past, for which the budget is often important. This approach has allowed Domino's to pass on its savings to customers through multiple pizza and other food-order offers.

Domino's will be able to handle pizza operations if it uses a master budget aligned with the sales budget and serves as a planning tool. That is because there will be no finished product stock of baked pizzas that will be processed for the next year. A sales budget will cover the expenses involved in the production and selling of pizzas such as used raw ingredients, dough expenses, manufacturing costs, shipping costs for gasoline, wages etc. This budget helps in directing its activities. The overheads are centered more on the number of restaurants than on the amount of pizzas delivered. That's how the number of restaurants brings wages, leases, services and other operating expenses to the administration costs. The overhead budget assists in controlling the various restaurants. Though the delivery drivers own the delivery cars, car depreciation and repair expenses are not included in the overhead expenditure of Domino’s.

Other aspects of the master budget include a financial balance sheet showing the total balance including all the obligations, investments and equity balances and capital projections, including revenue inflows, outflows, borrowing and spending. Domino's will benefit from a master budget because it provides for a visual and organized depiction of its minimal store and capability model. The company would have a lot to keep up with, but with a master budget, everything would be set out in a easy and defined manner.