Question

What are the components and flow of a master budget? Whats the starting point?

Answer 1

The components of a master budget in the order of flow are as under:

1. Sales budget and Schedule of expected cash collections

2. Production budget

3. Direct materials purchases budget and Schedule of expected cash disbursements for material purchases

4. Direct labor budget

5. Manufacturing overheads budget

6. Cost of goods sold budget

7. Selling and administrative expenses budget

8. Cash budget

9. Budgeted income statement

10. Budgeted balance sheet

As seen from the flow above, the starting point of a master budget is thus the sales budget.