Components of the Master Budget

Learning Outcomes

  • Outline the sequence of components of the master budget

So, the sales budget is the starting point, as we discussed in the previous section. We also discussed some of the other components of the master budget that can happen once we have solid sales numbers to work from.

The components of the master budget interrelate, and it is important to prepare them in order, as information from one component is needed to complete the next! Take a look at this crazy flow chart for a manufacturing business!

The sales budget is used for the production budget and the selling and administrative expense budget. The selling and administrative budget is used for the budgeted income statements. The production budget is used for the finished goods budget, the direct materials budget, the direct labor budget, and the manufacturing overhead budget. The finished goods budget is used for the production budget. The direct materials budget, the direct labor budget, and the manufacturing overhead budget, the selling and administrative expense budget, and the budgeted income statement are all used for the cash budget. The cash budget is used for the budgeted balance sheet and the budgeted income statement. The budgeted income statement is used for the budgeted balance sheet and the sales budget.

So this gives you an overview of how each of the components of the entire budget work together. As a reminder, that this is a master budget for a manufacturing business.  Also note, that we would be setting up the budgets in an Excel workbook with a sheet for each budget.

Now let’s look at the production budget!

Practice Questions