Question

managerial

View Discussion Post a total of 3 substantive responses over 2 separate days for full participation. This includes your initial post and 2 replies to other students Due Thursday Respond to the following in a minimum of 175 words: Discuss the circumstances and effective use of master budgeting (Ch. 8), flexible budgets and performance analysis (Ch. 9), standard costs and variances (Ch. 10) in differing types of business. How would you establish a master budget? How would subordinate budgets be established? What factors would compose the differing budgets? How would those factors relate to each other, related budgets, and the master budget?

Answer 1

The master budget is the sum total of all the divisional budgets that is prepared by all the divisions. Further, it also includes the financial planning, cash-flow forecast and budgeted profit and loss account and balance sheet of the organization. It is the goal of the organization to reach a level in a particular period. Normally master budget is prepared for a year.

Steps to Prepare Master Budget

a) Sales Budget

The sales budget is prepared based on considering the following factors:

• Market demand estimation
• Production capacity or an infrastructure facility
• Current supply facility
• Industry analysis

b) Production Budget  

• Inventory at the beginning of the year
• Inventory to be maintained at the end of the year
• Number of units manufactured
• Buffer stock to be maintained throughout the year

The production budget is divided into further three parts:

Direct material budget,   Direct labor budget, Manufacturing overhead budget

c) Capital Asset Acquisition Budget : any purchase capital assets

Cash Budget, Budget Income Statement and Budget Balance Sheet

II) I have already created a budget unit to which you can assign subordinate budget units.

Procedure

1. On the SAP Easy Access screen, in the SAP Standard Menu choose Human Resources Training and Events   Budget   Budgeting . The Budgeting: Initial screen appears:
2. The Change Budget Structure: Initial screen appears:
3. Select the budget unit to which you want to assign a budget unit.
4. Choose Pencil The Change Budget Structure screen appears.
5. Select the budget unit for which you want to create a new (subordinate) budget.
6. Choose Folder. The Create Budget and Relate dialog box appears .
7. Enter an abbreviation and a long name for the new budget.
8. Choose Save.

Result

I have created the budget and related it to the required budget unit.

iii) To create an accurate picture, operating budgets must account for factors such as sales, production, labor costs, materials costs, overhead, manufacturing costs, and administrative expenses. Operating budgets are generally created on a weekly, monthly, or yearly basis.

5 types budget commonly used by the business

a) Master Budget, Operating Budget, Static Budget, Cash Flow Budget and Finance Budget

iv) A flexible budget is a revised master budget based on the actual activity level achieved for a period. The master budget is established before the period begins for planning purposes, and the flexible budget is established after the period ends for control and evaluation purposes. Production managers are evaluated using the flexible budget because the usage of direct materials, direct labor, and manufacturing overhead will depend on the actual number of units produced. Standard budget specify a particular activity.