Question

Within accounting and budgeting practices, articulation refers to how values from different schedules and/or statements relate to one another.

During the Master Budgeting process, certain values may articulate within a given schedule or budget and certain other values may articulate to other schedules or subsidiary budgets altogether.

Describe 5 instances during the creation of a Master Budget where articulation takes place.

Answer 1

Creation of Master Budget comprises of many small schedules / budget from where data articulates into it; Few budgets are as below:

1. Sales Volume Budget - Only based on this, Revenue can be projected for the period in Master Budget.

2. Production Volume Budget - Only based on this, actual units required to produce the desired output can be projected for the period.

3. Inventory Budget - along with sales & production, ending inventory schedule has to be prepared in order to prepare the master budget. Because ending inventory has to be known to plan for future purchases and in turn to meet with desired sales.

4. Manufacturing or Variable & Fixed OH Budget - this relates to other OH and this data gets included in the master budget to arrive at desired profit.

5. Direct Material and/or Direct Labor Budget - this helps in arriving at COGS and desired / budgeted Contribution Margin.

Master Budget provides complete view for an organisation to know the desired profit and to arrive the same, many small schedules like above are required to be supported with.