Script for presentation

PRESENTED BY COURSE DATE The Master Budget Introduction • A budget is a financial plan that outlines expected income and expenses over a specific period, typically a year. • According to Eldenburg & Wolcott (2005), a Master budget is• A comprehensive plan for the upcoming accounting period. • It is usually prepared for one year, and • It is often based on a series of budget assumptions Components of a Master Budget • The master budget consists of several subsidiary budgets in two categories • • Operating Budgets • Financial Budgets Operating budgets focus on the organization’s day-to-day operations and performance. • They help plan and control production, sales, and administration activities. • Financial budgets deal with the organization’s financial resources and activities. • They provide insights into the financial health and stability of the business. Developing a Master Budget • Developed using a set of assumptions. • Assumptions are plans and predictions on the next period’s operating activities. • Sales forecasts and pricing plans are some common assumptions to be made. Master Budget Components • Revenue Budget: • • Production Budget: • • Forecasting production volume based on beginning inventory, sales forecasts, and desired ending inventory levels. Budgets for Direct Materials, Labor, and Overhead: • • Generated from sales forecast and pricing plans. Derived from the production budget. Budgets for Ending Inventory and Cost of Goods Sold: • Utilize data from direct materials, labor, and overhead budgets. Master Budget Components (Continued) • Operating Budget for Nonproduction Departments • • Includes costs for departments such as sales, human resources, research and development, and general administration. Cash Budget: • Projects expected operating cash receipts and disbursements. • Incorporates planned capital expenditures and long-term financing. Master Budget Components (Continued) • Short-term Financing Budget: • • Developed based on cash budget and financial needs. Budgeted Financial Statements: • Components of all preceding budgets are combined to create a budgeted income statement, balance sheet, and cash flow statement. • They are mostly called projected financial statements Master Budget Preparation process • • • Involvement of Various Departments • Collaboration among different departments like sales, production, finance, and administration. • Each department provides input relevant to its functions for accurate budgeting. Data Collection and Analysis • Gathering relevant historical data, market trends, and other pertinent information. • Analyzing data to make informed decisions and projections. Iterative Review and Revision • Continuous review and refinement of budget assumptions and projections. • Feedback loops and adjustments based on changing circumstances or new information. Challenges in Master Budget Preparation • • • Leadership in Budgetary Process • Managers provide guidance and direction throughout the budget preparation process. • They set the tone for collaboration and ensure organizational goals and objectives are aligned. Monitoring and Control • Managers oversee the implementation of the master budget. • They track actual performance against budgeted targets and intervene as necessary to address deviations. Accountability for Social Responsibility Targets • Managers are responsible for integrating social responsibility targets into the budgeting process. • They ensure that financial decisions align with ethical, environmental, and societal considerations, holding themselves and their teams accountable. Challenges in Master Budget Preparation • • • Uncertainty in Market Conditions • Fluctuations in market demand, competitive pressures, and economic conditions can challenge accurate forecasting. • Managers must anticipate and adapt to changing market dynamics to minimize the impact on budgetary targets. Ethical Dilemmas in Cost Management • Balancing cost-cutting measures with ethical considerations, such as fair wages, supplier relationships, and environmental sustainability. • Managers face decisions that impact financial performance and social responsibility, requiring careful deliberation. Balancing Profitability and Social Responsibility • Ensuring that financial goals align with broader social and environmental objectives. • Managers must navigate the tension between maximizing profits and fulfilling corporate social responsibilities, finding synergies where possible. References  Eldenburg, L., & Wolcott, S. K. (2011). Cost management: Measuring, monitoring, and motivating performance. John Wiley.

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