The Master Budget

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The master budget consists of various sub interrelated budgets. The goal is to deeply think of all areas affecting the business goals and develop a plan of action to meet those goals.

The master budget starts with projecting sales. After sales projections the following sub-budgets are created:

  1. Production budget: computes how many units should be produced to meet the sales goals
  2. Raw materials budget: computes how much raw materials should be purchased to produce the number of units calculated in the production budget
  3. Direct labor budget: Estimates direct labor cost to meet the production goal
  4. Selling & Admin budget: estimates the expenses needed to meet the sales goal outside of production.
  5. Income statement: The end product of the budgets described above is the budgeted income statement.
  6. Cash flow statement: As we know cash flow does not equal profits. This budget estimates expected cash inflow and outflow
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Description

The master budget consists of various sub interrelated budgets. The goal is to deeply think of all areas affecting the business goals and develop a plan of action to meet those goals.

The master budget starts with projecting sales. After sales projections the following sub-budgets are created:

  1. Production budget: computes how many units should be produced to meet the sales goals
  2. Raw materials budget: computes how much raw materials should be purchased to produce the number of units calculated in the production budget
  3. Direct labor budget: Estimates direct labor cost to meet the production goal
  4. Selling & Admin budget: estimates the expenses needed to meet the sales goal outside of production.
  5. Income statement: The end product of the budgets described above is the budgeted income statement.
  6. Cash flow statement: As we know cash flow does not equal profits. This budget estimates expected cash inflow and outflow