Master Budget

Master Budget

A comprehensive financial plan that integrates all departmental and functional budgets into a coordinated set of financial statements, providing a complete overview of expected activities, results, and financial position for a future period.

For instance, a manufacturing company’s annual master budget consists of operating budgets (sales, production, direct materials, direct labor, manufacturing overhead, selling and administrative expenses) that feed into financial budgets (capital expenditures, cash flow, budgeted income statement, and budgeted balance sheet), creating a unified financial roadmap.

The master budget represents the culmination of the budgeting process, translating operational plans into financial terms. Preparation typically follows a logical sequence: first establishing sales projections, then deriving dependent operating budgets based on those projections, and finally developing the financial budgets that reflect the financial consequences of operational plans. The process requires coordination across all organizational functions to ensure consistency and feasibility. The resulting documents serve multiple purposes: communicating expectations, allocating resources, coordinating activities, establishing performance targets, and providing a basis for control through variance analysis. Effective master budgeting balances achievable targets with stretch goals while maintaining alignment with strategic objectives and operational realities.