MASTER BUDGET:

The master budget is a review budget which combines all functional budgets and it may take the form of Financial Statements at the end of budget period. It is also called the operating budget. It embraces the impact of both operating decisions and financing decisions. It provides the necessary plan for operations during the period when all detailed budgets have been completed. A master budget becomes a principal document for the operations of the industry during the period it covers. Actually, budgets have to be amended several times before the position disclosed by the summary budget is accepted. A master budget is an annual profit plan, which may be broken into months or quarters.

As a result a master budget is:

i) A statement of a company’s operating policy for the budget period, and ii) A budgeted profit and loss account for the budget period and a balance sheet as at the end the period.

Merits of the Master Budget:

A review of all the functional budgets in specific form is available in one report.

It presents an overall profit position of the organization for the budget. It also contains the information regarding the forecast balance sheet. It examines the fitness of all the functional budgets.

Performance Budgeting (PB): Meaning:

The term performance implies results or outputs. ‘ A performance budget is one which presents the purposes and objectives for which funds are required, the costs of the programmes proposed for achieving those objectives, and quantitative data measuring the accomplishments and work performed under programme. Thus, PB is a technique of presenting budgets for costs and revenues in terms of functions, programmes and activities and correlating the physical and financial aspects of the individual items comprising the budget.

As per the National Institute of Bank Management, PB technique is, "the process of analyzing, identifying, simplifying and crystallizing specific performance objectives of a job to be achieved over a period in the framework of the organizational objectives, the purpose and objectives of the job. The technique is characterized by its specific direction towards

the business objectives of the organization." As a result, performance budget accentuates the execution of specific goals over a period of time. Steps in Performing Budgeting (PB):

 Establishment of performance targets  Establishment of responsibility centre  Estimating financial requirements

 Comparison of actual with budgeted performance  Reporting and action

BUDGET

Functional Budget – Sales Budget

1. J K Ltd. sell two products Jay & Kay in four area North, South, East and West. The following sales are budgeted for the month of January 2013.

North: - Jay 5,000 Units @ Rs 30 each, and Kay 3,000 Units @ Rs 15 each. South: - Kay 6,000 Units @ Rs 15 each.

East: - Jay 7,500 Units @ Rs 30 Each

West: - Jay 4,000 Units @ Rs 30 each and Kay 2,500 Units @ Rs 15 each. Actual sales for the same period were as follows.

North: - Jay 5,750 Units @ Rs 30 each and Kay 3,500 Units @ Rs 15 each. South: - Kay 6,250 Units @ Rs 15 each.

East: - Jay 8,250 Units @ Rs 30 each

West: - Jay 4,750 Units @ Rs 30 each and Kay 2,625 Units @ Rs 15 each. On the basis of all the relevant factors, the following sales are budgeted for the month of February 2013.

North: - Jay 6,000 Units and Kay 3,250 Units. South: - Kay 6,500 Units.

East: - Jay 8,500 Units.

West: - Jay 4,500 units and Kay 2,750 Units.

It was decided that additional advertising campaign will be undertaken in South and East which will result in additional sales of 1,500 units of Jay in South and 2,500 Units of Kay in East.

You are required to prepare a sales budget for the month of February 2013 for presentation to management, also showing the budgeted and actual sales for the month of January 2013 which are to be provided as a guide in preparing the sales budget.

Production Budget:-

1. The following information has been made available from the records of precision Tools Ltd. for the six months of 2012(and the sales of January 2013), in respect of Product X.

(i) The units to be sold in different months are :

Month Units Months Unit

s July 2012 1,100 November 2012 2,50 0 August 2012 1,100 December 2012 2,30 0

September 2012 1,700 January 2013 2,00 0 October 2012 1,900

(ii) There will be no work in progress at the end of any month.

(iii) Finished units equal to half the sales of the next month will be in stock at the end of every month ( including June 2012)

(iv) Budgeted Production and Production Cost for the year ending 31st

December 2012 are thus:

Production (Units) 22,000

Direct Material Per Unit Rs 10.

Total Factory Overhead apportioned to Production Rs 88,000 You are required to Prepare:

a) Production budget for the six months of 2012 and

b) Summarized Production cost budget for the same period.

Functional Budget – Purchase Budget

1. The sales manager of Mahindra & Co. Ltd. reports that next year he expects to sell 50,000 units of a certain Product.

The production manager consult the storekeeper and casts his figure as follows. Two kinds of raw material A & B are required for manufacturing the product. Each units of the two products A & B are required for manufacturing the product. Each of the Product requires 2 Kgs of A and 3 Kg of B. The estimated opening balances at the commencement of the next year are finished product 10,000 Units; A, 12,000 Kg; B15,000 Kgs . The desired closing balance at the end of the next year are: Finished Product 14,000 units; A, 13,000 Kgs; B, 16,000 kgs.

Draw up a material purchase budget for the next year.