Master_Budgeting

Master Budgeting and Flexible Budgeting Master budgeting and flexible budgeting are important factors for organizations to consider when making decisions. The two coincide with each other realizing that the flexible budget is part or all of a master budget that is put together for the actual levels of sales and other cost driving activities. Master budgets assume fixed levels of activity. Therefore the master budgets won’t change even if the underlying sales and other cost driving activities do change. Master budgeting and flexible budgeting are key pieces to the accounting process. A master budget is a collection of interconnected budgets and forecasts that come together to sum up the planned actions of an organization. The master budget is one of the most reliant financial planning tools for an organization and it provides the groundwork for a firm financial control system. A master budget includes things such as sales, production, materials, labor, overhead, General and administrative, cash receipts, cash, and cash disbursements. The quantity and type of individual budgets that construct the master budget depend on the size and nature of the business. One significant role of the master budget is to provide yardstick for evaluating performance. In most cases some assumptions are made when preparing a master budget. Sales prices stay constant during the budget period. Variable costs per unit stay constant during the budget period. Fixed costs will stay constant. Sales mix stays constant when the company participates in the sale of more than one product. These assumptions ease the planning process by removing many of the economic complexities. A flexible budget shows budgeted revenue, costs, and profits for different levels of business actions. A flexible budget can be used to evaluate the efficiency of departments all over the organization even if the actual level of business activity differs from management's original estimates. The numbers included in a flexible budget at any level of activity are based on cost-volume-profit relationships. Flexible budgets contrast with the master budget. Financial budgets include the capital budget, cash budget, and a budgeted balance sheet. Computerized financial planning models makes preparation of flexible budgets easy because the model contains the quantitative relationships between activity levels and revenues or expenses, but flexible budgets can also be prepared without the use of technology. Master budgeting and flexible budgeting used by organizations throughout the world. These budgets make it possible to maintain accountability of operations. Accountants, managers, and finance professionals are able to use budgeting to generate key information. Master budgeting and flexible budgeting are imperative for organizations to make decisions and operate at optimal levels.