Q$1.$ What is a Master Budget? Briefly Describe its Contents.

Answer: Master budget can be defined as an elaborate organization$-$wide financial plan that covers all aspects of business$$s activity in a specified time period, the most common one being the fiscal year. An example is the financial statement that lists the operating budget and the financial budget in a single document hence providing a holistic picture on the organization$$s financial activity and its financial forecasts.

$1.$ Contents of a Master Budget:

Operating Budget:

$$ Sales Budget: Enables one to be inclined to approximate the expected sale revenue for the budget period.

Components: Sales volume that was forecasted, unit selling price, total sales revenue.

Example: For instance, if a company forecasts selling $10,000$ pieces at $$50$ each, then its sales budget would be $ $500,000.$

$$ Production Budget: Decides on the number of units to produce to address the sale plans and the stock levels.

Components: Planned sales, opening stock, target closing stock.

Example: With this formulation, it can be gathered that if the company intends to sell $10,000$ units, holds an amount of $2,000$ for the start of the year, and would like to have $3,000$ at the end of the year, then the number of units required for the fiscal year is $11,000.$

$$ Direct Materials Budget: Forecasts the raw materials that will be used in production.

Components: Desired monthly output, input per gross, starting and ending stock of inputs.

Example: If each unit of the product uses up $2$ pounds of material and the company is to produce $11,000$ units, then it will use up $22,000$ pounds of material.

$$ Direct Labor Budget: Compounds a Bill of Labor for the production to give the acceptable number of labor hours and the costs involved.

Components: Units to be produced, required hours per unit, and rate of labor.

Example: If each unit demands $0.5$ labor hours and $11,000$ units are required to be produced at $$20$ per hour, the direct labor budget will be $$110,000.$

$$ Manufacturing Overhead Budget: Calculates all manufacturing costs apart from direct material and direct labour.

Components: The variable and fixed overhead expenditure of the business.

Example: Variable overhead is $$3$ per unit of production while the fixed overhead is $$50,000$; thus the manufacturing overhead cost for $11,000$ units is $$83,000.$

$$ Selling and Administrative Expenses Budget: Aims at exposing the costs associated with the selling of the product and the overall management of the business.

Components: Semi$-$variable expenses which includes selling expenses and fixed expenses in the form of administrative costs.

Example: If the variable selling expenses are $$2$ per unit and the fixed administrative expenses are $$40,000,$ then the total of the selling and the administrative expenses of $11,000$ units are as follows; $2$ times $$11,000=$ $ $22,000$ selling expenses and $ $40,000$ administrative expenses which equals to $$62,000.$

$2.$ Financial Budget:

$$ Capital Expenditure Budget: Large scale propositions of capital intensive investments on plant and equipment.

Components: Expected$ for acquisitions, enhancements or new products, and for out right investments in tangible assets.

Example: In capital expenditure budget, an item that a company plans to spend most of its money on is taken into consideration, for example if a company intends to buy new machinery worth $$100,000.$

$$ Cash Budget: Being a cost center, it helps estimate cash receipts and expenditures to avoid cash flows problems for the business.

Components: Projecting cash receivables, cash disbursements, and required funds.

Example: Returning to the company, if expected sales revenue is $$500,000,$ and expense is $$450,000$ then the cash budget will indicate a net cash inflow of $$50,000.$

$$ Budgeted Balance Sheet: Tells the position of the financial of the company at the end of the period.

Components: It is the balances that an analyst estimates based on available information and corporate data.

Example: Budgeted balance sheet will show the budgeted total assets as one million, budgeted total liabilities as four hundred thousand and budgeted total shareholders$$ equity as six hundred thousand provided the company had envisaged such figures.

$$ Budgeted Income Statement: The PL is takes place of the company$$s financial foregrounding and present the expected revenues and expenditures to be incurred by the company in the future.

Components: Sales, cost of sales, operating expenditure, profit before tax.

Example: For example, if the company$$s budgeted sales is $$500,000,$ COGS $$300,000,$ and operating expenses $$150,000,$ then the budgeted income statement reveals the net income of $$50,000.$