Red Duv Aviation Simulation MOD 7
The Master Budget
For this week:
Budgets and Standard Costing: Evaluate the different types of budgets and discuss how operating and financial budgets are prepared for a manufacturing company. Discuss the use of budgets and standard costs to control business activities. Explain how standard costs are used to determine variances.
There are most different types of budgets, they are the following:
Operating Budget: Income statement elements such as revenues and expenses.
Financial Budget: Balance sheets that deal with expected assets, liabilities, and stockholder’s equity.
Cash Budget: Expected cash inflows and outflows during specific period.
Master Budget: Set of operating and financial budgets for a specific accounting period such as the next fiscal or calendar year.
Static Budget: Also known as the Fixed Budget, this is the budget that is expected to be at capacity level because the static budget is fixed, the would be known as the stable companies.
Flexible Budget: it is the budget at the actual capacity level, because the flexible budget is most commonly used by companies.
Capital Expenditure Budget: This is for the expected investments in capital assets and long-term projects which is used for mostly 3 to 10 years.
Program Budget: This is used for a specific program or activity such as marketing, research and development, public relations, training, and engineering.
When preparing of the operating and financial budgets for a manufacturing company budgeting the company’s best tool for both planning and maintaining control. They start by preparing a sales forecast or a sales budget, then next to determining production volume. Then determine the estimating and manufacturing costs and operating expenses. Next, determine the cash flow and other financial effects. Lastly, formulate the projected financial statements on the Budgeted Income Statements and Balance Sheet.