Running Head: MASTER BUDGETS 1

MASTER BUDGETS

Student’s Name

Professor’s Name

Institutional Affiliation
 MASTER BUDGETS 2

Abstract

Master budgets are crucial documents that helps company achieve their set goals

and objectives. Preparation of a master budget requires a company evaluate its ability to produce

as well as its ability to meet its market demand. A master budget helps a company identify

available market gaps as well as evaluate its strengths and weaknesses in meeting its market

demand. Through planning, companies are able to keep track of their records as all budgets are

documented and budgeted for future references. The budgeting process involves evaluation of a

company’s sales as well as its performance levels which are crucial in sourcing for revenues as

well as determining if the company is in the right direction to meet its goals and objectives.

Therefore, it is important for managers to ensure that master budget planning is a crucial step

that is incorporated within the company’s business operations.

Master Budgets

Chicago Furniture Company produces chairs and desks for elementary schools in the

Midwest. Preparation of a formal budget enables the company plan for its ability to deliver the

desks and chairs to their prospective customers in time. The budget planning process requires the

manager to evaluate the company’s ability to make sales as well as plan for future sales before

allocating funds to its business operations.

Discussion

During preparation of a master budget it is crucial for the company to ensure that it first

evaluates its sales. This is can be done through assessing the current sales and thus forecasting

future sales. Advantages of ensuring that sales forecasting is the first important step during a

formal budget preparation are:-

 MASTER BUDGETS 3

Sales forecasting helps a company determine its current financial position as its value is

determined by the ability to make more profit from its sales. During planning for future sales, a

company is able to identify its strengths and weaknesses while meeting it market demand.

Forecasting also helps the company carry out its budgeting process effectively as it has a clue of

its supply prowess which is important in allocating finances to its operations.

Sales forecasting also helps a company keep track of its set goals and objectives. Through

this a company is able to identify its market dynamics and can control oversupply or

undersupply. The company is able to identify certain times when it should produce more goods

for its customers. The company is also able to identify when demand is lower than supply and

hence control its production.

Sales forecasting also helps a company set the price for its product. Through forecasting,

a company can get to know on the possible measures of regulating its prices while minimizing

input and maximizing output. This makes the company able to compete in the market while

maximizing its profits. Chicago Furniture company is able to keep track of its current inventory

and hence able to calculate its costs of production. Chicago Furniture Company is able to

evaluate the cost of production per unit item and hence is able to forecast the possible price to

sell the combination desks and chairs to their customers in Midwest.

Sales forecasting also helps a company identify available market gaps. Through

forecasting, the company is able to identify its customer’s buying behavior as well as preferences

during certain times of its financial year (Henttu-Aho & Järvinen, 2013). Through this the

company achieves controlled production and supply as well as enhance customer satisfaction

which is crucial in customer retention.

 MASTER BUDGETS 4

Through preparation of a formal budget plan, a company is more likely to benefit from the

following.

Better and improved income generating opportunities. A company is more likely to boost

its sources of revenues as with a well prepared formal budget it is at a better position to source

for finances in order to funds its operations from established financial lending institutions

(Khamooshi & Cioffi, 2009). In this case, the formal budget acts as a proof of how Chicago

Furniture Company manages its fund in the production of both chairs and desks for elementary

schools in the Midwest. Most financial institutions evaluate the figures presented in a company’s

budget to help them determine the company’s ability to repay loans and grants given.

A well prepared budget also helps a company manage its available resources well. This is

because the management is able to compare the budgeted values with the company’s

performance level which is crucial in determining whether the company is in line to meet its set

goals and objectives. Through this, the management can explain if the company has lost track or

if its performance levels are still on track. Therefore, it is easy for the management to change the

goals and objectives of the company or push for the company’s delivery of its services. In this

case, Chicago Furniture Company will have the capability of determining whether it is able to

meet the demand of chairs and desks from elementary schools in the Midwest.

A well planned budget plan also helps a company create its financial path in meeting its

set goals and objectives (Macinati, 2014). This in line enables the managerial department benefit

from the budgeting process in setting or changing the goals and objectives of the company.

Through budgeting, the company is also able to account for its available resources as well as

envision on how to acquire resources unavailable resources that are crucial in meeting its goals

and objectives.
 MASTER BUDGETS 5

Conclusion

In conclusion, it is an important requirement for companies to ensure that the have well

prepared formal budgets as they are vital in ensuring success in all their operations. This is

because, a well prepared formal budget stipulates a company’s ability to supply its market and

meet the demand placed by its intended customers. A well prepared formal budget acts as proof

the company’s ability to meet its set objectives. Therefore, it is important for managers to ensure

that budget planning is a well observed process carried out within their organizations.
 MASTER BUDGETS 6

References

Henttu-Aho, T., & Järvinen, J. (2013). A field study of the emerging practice of beyond

budgeting in industrial companies: an institutional perspective. European Accounting

Review, 22(4), 765-785.

Khamooshi, H., & Cioffi, D. F. (2009). Program risk contingency budget planning. IEEE

Transactions on Engineering Management, 56(1), 171-179.

Macinati, M. S. (2014). NPM reforms and the perception of budget by hospital clinicians:

Lessons from two case‐studies. Financial Accountability & Management, 26(4), 422-442.