Tiêu đề TOPIC 9 BUDGETARY CONTROL.pdf ✅

(vii) Under suitable condition, standard costing and budgetary control may go hand in hand and can harmonies and make the planning and control more effective. 9.2 Preparation Of Budgets; Master Budgets, Functional (Department Budgets, Cash Budgets), Proforma Financial Reports (Income Statements And Balance Sheets) Master Budgets All the functional division of the organization prepares the budget for the particular division. 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. Sometimes, it may be misunderstood that master budget is one large budget of the organization. However, it is not the case. Master Budget is the summary of the divisional budget. It is a continuous financial plan. Steps to Prepare Master Budget Sales Budget The sales budget is the foundation of the master budget. All the procurements, staff requirements and administration cost are based on the sales. First and foremost, the number of units to be sold and price per unit are derived. On the basis of that, the value of sales is calculated. 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 Market demand and production capacity are determined with the help of Marketing division and production division respectively. Production Budget The production budget is mainly based on the sales budget. However, following factors shall be considered; • 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 If the company is not having manufacturing unit, we require a number of units to purchase instead of the production budget. Capital Asset Acquisition Budget The plant, machinery, and equipment require periodical maintenance and replacement. If the sales target is higher than the previous period, new plant and machinery also need to be introduced.