What is a master budget?
Answer and explanation
Correct answer: B. A summary of the functional budgets: the budgeted statement of profit or loss, financial position and cash budget
- Step 1: Functional budgets (sales, production, purchases, labour, overheads) are prepared first.
- Step 2: The master budget combines them into the budgeted statement of profit or loss, the statement of financial position and the cash budget.
Answer
A summary of the functional budgets: the budgeted statement of profit or loss, financial position and cash budget.
Why not the others: This describes a spending limit and not the budgets combined. The first budget prepared is the one for the principal budget factor, which is not always sales. This describes a rolling forecast and not the master budget.
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