Q8RQ - Horngren'S Financial And Managerial Accounting

Question

In a manufacturing company, what are the three types of budgets included in the master budget? Describe each type.

Step-by-Step Solution

Answer

The master budget includes the operating, capital, and financial budgets.          

Step 1: Meaning of Master Budget

A budget that shows the overall planning of the economic activities from the lower to the top level is known as the master budget. It gives the strategic path to accomplish all the goals and objectives of the company effectively and efficiently.  

Step 2: Explanation

1. The operating budget: The operating budget is the set of operating activities of the business, such as sales revenue, cost of goods sold, and selling and administrative expenses.
2. The capital expenditure budget: The budget plan is related to purchasing property, plants, equipment, and other long-term assets.
3. The financial budget: A budget that includes a cash budget and budgeted financial statements is a financial budget.