Chapter 5: Strategy and the Master Budget

Recitation Equivalent Activity

1. What is a budget? What is budgetary control?
Budget is a tool to plan a firm’s financial resources that is essential to effectively carry
out tasks and achieve goals. It is also the allocation of resources and management of cash
flows. The use of budgets to control and evaluate the firm’s activities is known as budgetary
control.
2. Discuss some of the major benefits to be gained from budgeting.
Benefits gained from budgeting are:
a) It allocates your resources effectively to prevent more cost and waste.
b) It allows the management to communicate their plan and objectives in all departments.
c) It is able to avoid or minimize the problems that a firm may encounter financially.
d) It helps different departments to have common understanding and have coordination in
every operating activities.
e) It makes the decision-making process more effective by helping managers to meet or
know uncertainties.
f) It serves as a criteria to evaluate various departments’ performance.

3. What is a master budget? Briefly describe its contents.

A master budget is used for the firm’s short-term objectives. It is an overall financial
operating plan for a coming fiscal period and the coordinated program for achieving the plan.
Mainly it has two parts which is operating budget and financial budget. Operating budget
includes, sales, production, direct materials, direct labor, factory overhead, and selling and
administrative budget. While financial budget includes cash budget, pro forma financial
Statements, projected income statement, projected balance sheet, and projected cash flow
statement.

4. Describe the flow of budget data in an organization. Who are the participants in the
budgeting process, and how do they participate?
The flow of budget data can be divided into two namely, top-down which is authoritative
or hierarchical and bottom-up which is participative. In budgeting process, most firms should
passed stages like budget negotiation, review, approval and revision. In budget negotiation, all
levels of the organization may participate, lower level managers specifically prepares a budget
then a top level management or the Head shall examine the said budget proposal. After
checking, the budget committee will have to review and approve the final budget with the help of
the controller. Periodic revision of the approved budget is essential to provide better
performance and operating guidelines.
 The above statement conclude that in order to have an effective budget, there must be a
good balance of top management involvement with lower-level management because it will
prevent a firm from having an easy target budget and prevent alienation of lower managers.

5. How can budgeting assist a company in planning its workforce staffing levels?
Budgeting can be a lot of help in planning its workforce. First, with budgeting we can
evaluate the performance of each worker and bring feedback to direct them correctly. Second, a
budget communicates plan and goals therefore it helps you to know the needed kind and level
of workforce staffing. Third, with direct labor budget, a firm can lessen or amplify workers
efficiently.