Master Budget

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According to CIMA , Official Terminology “A budget is a financial and /or quantitative prepared prior to a defined period of time , of the policy to be pursued during that period for the purpose of attaining a given objective.”

In the words of Crown and Howard , “ A budget is a pre- determined statement of management policy during a given period which provides a standard for comparison with the results actually achieved.”


Budgetary control is the process of determining various budgeted figures for the enterprise for the future periods and then comparing the budgeted figures with the actual performance for calculating variances, if any. First of all , all budgets are prepared and then the actual results are recorded . The comparison of budgeted and actual figures will enable the management to find out the discrepancies and take remedial measure at the proper time. The budgetary control is a continuous process which helps in planning and co-ordination. It provides a method of control too. A budget is a means and budgetary control is the end-result.


The budgets are usually classified according to their nature . The following are the types of budgets which are commonly used .

A) Classification according to Time

1. Long-term budgets.

2. Short-term Budgets

3. Current budgets.

B) Classification on the Basis of Function

1. Operating Budgets

2. Financial budgets

3. Master budgets

C) Classification on the basis Flexibility.

1. Fixed Budgets

2. Flexible Budgets.


1. Long-Term Budgets: These budgets are prepared to depict long term planning of the business. The period of long term budgets varies between five to ten years. The long term planning is done by the top management.

2. Short-Term Budgets: These budgets generally for one or two years and are in the form of monetary terms.

3. Current Budgets : The period of current budgets is generally of months to weeks. These budgets relate to the current activities of the business.


1. Operating Budgets. These budgets relate to the different activities or operations of the firm. The number of such budgets depends upon the size and nature of business. The commonly used operating budgets are

1. Sales Budget

2. Production Budget

3. Production Cost Budget

4. Purchase Budget

5. Raw Material Budget

6. Labor Budget

7. Plant Utilization Budget

8. Manufacturing Expense or Works Overhead Budget

9. Administrative and Selling Expense Budget,etc.

2. Financial Budget. Financial budgets are concerned with cash receipts and disbursements, working capital, capital expenditure, financial position and result of business operations. The commonly used financial budgets are

1. Cash Budget

2. Working Capital Budget

3. Capital Expenditure Budget

4. Income Statement Budget

5. Statement of Retained Earning Budget

6. Budgeted Balance Sheet or Position Statement Budget.

3. Master Budget. Various functional budgets are integrated into Master Budget. This budget is prepared by the ultimate integration o separate functional budgets .According to I.C.W. London , the Master Budget is the summary budget incorporating its functional budgets. Master budget is prepared by the Budget Officer and it remains with the top level management .This budget is used to co-ordinate the activities of various function department and also to help as control device.


1. Fixed Budgets: It is a budget which is designed to remain unchanged irrespective of the level of activity actually attained. Fixed budges are suitable under static conditions.

2. Flexible Budget: It is prepared after taking into consideration unforeseen changes in the condition of the business. Flexible budget is defined as a budget which by...
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