A master budget combines various sub-budgets which describe a business’s financial and production objectives. When preparing a master budget, the organization prepares the sub-budgets which constitute the master budget. The order of the completion of the sub-budgets is highly crucial, since outputs of the preceding budgets form the inputs of the subsequent budgets. Preparing a sales forecast is among the earliest steps in the preparation of a master budget. Sales forecasting is the initial phase in completing the master budget, as the sales forecast serves as a guide to the entire process of budgeting ( Shim, Siegel & Shim, 2011) . This is because the production level, and thus the case required for production, directly depends on the sales projection level. In completing the sales budget, company normally utilizes the sales of previous and current year as a beginning point for making an informed estimation on the sales figures of the succeeding year. After determining a forecasted sales level, the data is transformed to sales units to establish the quantity of units required to meet the forecasted sales. The amount is then adjusted in the production budget by the inventory volume held by the firm to establish the inventory volume for production.
A formal budget predicts and lists all profits, returns, revenues and expenditures. Budgeting is an essential part of any company, irrespective of its size. Companies and corporate planning depend greatly on formal budgeting. Formal budget paves the way for tools for controlling and determining profit-sharing and bonus figures. Among the most important benefits of a formal budget is the time managers should take during the year to assess all elements of their operation against the budget. This assists managers in keeping workers focused and offers a plan against which to compare progress. Also, a formal budget creates a complete picture of the future and creates awareness of barriers and opportunities ( Pilkington & Crowther, 2007) . Formal budgeting is also vital in funding planning and cash allocation as it allocates funds for supporting operations, and in helping the management to choose the assets which are worth to invest in.
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References
Pilkington, M., & Crowther, D. (2007). Budgeting and control. Financial Management , 3 .
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond (Vol. 574). John Wiley & Sons.
