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Components of master budget

Describe how the master budget and its components are developed for a manufacturing firm

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The master budget consists of a number of separate, but interrelated budgets.

The Sales Budget : The sales budget is a detailed schedule showing the expected sales for the coming period. It is typically expressed in both dollars and units of the product. The sales budget is usually accompanied by a schedule of expected cash receipts. The schedule of expected cash collections should take into account delays in collecting credit sales.

The Production Budget: The budgeted production for each period can be determined by adding together the budgeted sales and the desired ending inventory and then subtracting the beginning inventory. The desired ending inventory in units for each period is usually a predetermined percentage of budgeted unit sales for the following period. The production budget is typically expressed in terms of physical units rather than in dollars.

The Direct Materials Budget : Once production needs have been determined, a direct materials budget should be prepared. This budget details the ...

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Describe how the master budget and its components are developed for a manufacturing firm

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