BUS 5110 - Portfolio Activity Unit 5

University of the people

A master budget is used to project the income and expenses of a company. From the master
budget, a small-business owner can develop a variety of reports to help set specific goals for
the business. The major components of a master budget include income and expenses,
overhead and production costs, and the monthly, annual, average and projection
totals[ CITATION Mic19 \l 7177 ].

I will use Afrihost an internet service provider as my example and Afrishost has selected the
following process to develop its master budget:

The company starts with Sales budget – It is prepared first and it is for the following;

• Used to estimate sales volume and revenues

It is a detailed plan, expressed in both units and dollars, that identifies the product (or service)
sales expected in an accounting period

• Sales mangers use the information to – Plan sales- and marketing-related activities –
Determine human, physical, and technical resource needs

• Accountants use the information to – Determine estimated cash receipts for the cash budget
• To determine the total budgeted sales Total Budgeted Sales = Estimated Selling Price per
Unit x Estimated Sales in Units

• Once developed, other budgets can be developed – These other budgets will help manage
the organization's resources so that profits can be generated on sales In a service organization,
the sales budget is called the service revenue budget

• Kindly note that no standard format for budget preparation – Procedures vary from
organization to organization – Only universal requirement is that budgets communicate the
appropriate information to the reader in a clear and understandable manner

Operating Budgets … are a set of budgets that are used in planning the daily operations of
an organization

• Are part of the master budget

• Procedures for preparing operating budgets include – Cost behaviour analysis – Cost-
volume-profit analysis – A product costing method

• Organizations that manufacture a variety of products or services may prepare – Separate

operating budgets, or – One comprehensive budget for each product or service.

The Direct Labour Budget … is a detailed plan that estimates the direct labor hours needed
in an accounting period and the associated costs

• Production managers use estimated direct labour hours to plan – How many employees will
be required during the period – The hours each employee will work

• Accountants use estimated direct labour costs to plan – For cash payments to workers
 • Human resource managers use information on the direct labor budget to – Decide whether
to hire new employees – Reduce the existing work force – Train employees – Prepare
schedules of employee fringe benefits

The Selling and Administrative Expense Budget … is a detailed plan of operating expenses,
other than those related to production, that are needed to support sales and overall operations
in an accounting period

• Accountants use this budget to estimate cash payments for products or services used in
nonproduction-related activities

Financial Budgets … are projections of financial results for an accounting period • Include –
Budgeted income statement – Capital expenditures budget – Cash budget – Budgeted balance
sheet

The Budgeted Income Statement … projects an organization’s net income in an accounting

period based on revenues and expenses estimated for that period

The Cash Budget … is a projection of the cash an organization will receive and the cash it
will pay out in an accounting period

• Summarizes the cash flow prospects of all transactions considered in the master budget

• Information it provides enables managers to plan for – Short-term loans when the cash
balance is low – Short-term investments when the cash balance is high

• Excludes some planned noncash transactions – Depreciation expense – Issuance and receipt
of stock dividends – Uncollectible accounts expense – Gains and losses on sales of assets •
May also exclude – Deferred taxes – Accrued interest

The Budgeted Balance Sheet … projects an organization’s financial position at the end of an
accounting period

• Uses all estimated data compiled in the course of preparing a master budget – Is the final
step in that process[ CITATION Kan15 \l 7177 ].

In conclusion, Manufacuring budgeting, cost are classified by the following;

1- Direct materials are those tangible inputs to the manufacturing process that can be traced
to the product .

2- Direct labor is the cost of human labor that can be traced to the product .

3- Manufacturing overhead consists of all costs of manufacturing that are not direct materials
or direct labor .

While nonmanufacturing/ service company budgets can be classified as :

1- Selling ( marketing ) expenses are those costs incurred in getting the product from the
factory to the consumer .

2- Adminstrative expenses are those costs incurred by a company not directly related to
producing or marketing the product[ CITATION Ahm13 \l 1033 ].
 References

Seidel, M. (2019 йил 25-Jan). Major Components of a Master Budget. Retrieved 2020 йил 3-

Mar from https://smallbusiness.chron.com/major-components-master-budget-59414.html

Kandar, S. (2015 йил 29-Nov). Budgeting in service sector. Retrieved 2020 йил 3-mAR from

Linkedin slideshare: https://www.slideshare.net/SutanuKandar/budgeting-in-service-sector

Tharwat, A. (2013, June 11). What are the Difference Between Manufacturing and

Nonmanufacturing Costs ? Retrieved Mar 4, 2020, from Bayt:

https://specialties.bayt.com/en/specialties/q/7155/what-are-the-difference-between-

manufacturing-and-nonmanufacturing-costs/