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Organisation required for the preparation of a master budget

      

Organisation required for the preparation of a master budget

  

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Faith
(a) Where the business uses a system of standard costing, there should be an organisation/responsibilities for reviewing the standards annually.
(b) There should be a budget committee, possibly chaired by the chief executive, with members (senior managers) representing every department or operation in the organisation. This committee should have the authority to make decisions about the budget and give instructions accordingly to departmental management.
(c) There should be a budget officer, possibly management accountant, to act as secretary the budget committee, issue committee meeting minutes, chase up late departmental budget bring together the master budget into a P & L statement and budgeted balance sheet and so on.

(d) The departmental/operational budgets required to produce the master budget must be clearly defined and stated in sequence of preparation – for example sales budget finished goods stock budget, production budget, machine utilisation budget, direct labour budget, materials usage budget, overhead cost centre budgets, cash budget and so on budgeted costs and revenues are built up o the basis of cost centres. There must be a structure of such centres, and mangers responsible for the budget of each individual centre.
(e) In large organizations with subsidiary companies, the budget organisation for the group must provide for budgeting at subsidiary level, followed by budgeting at group level.
(f) For control purposes, the budget period should be divided up into control periods, and the budgeted revenues, costs and cash flows also divided accordingly. Budget cost allowances can thus be produced. A budget cost allowance is the cost, which a budget centre is expected to incur in a control period.
(g) A system should exist for reviewing the fixed assets expenditure budget within the framework of the preparation the annual master budget.

Titany answered the question on October 12, 2021 at 08:31


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