Introduction: In todays world, most of the companys main goal is profit making.

Everyone wants profit when he invests in a company. Due to achieve this goal company have to prepare different types of budget. All together this is called master budget.

A budget is a quantitative plan for acquiring and using recourses over a specified time period. Almost every person prepares a budget to organize his total monthly income. A person mainly prepares a budget to maintain a balance between his income and expenditure. In real life, most of us make a daily budget when go outside of the home. We also try to choose the best things with our limited income and for this we also need budgeting.

A company also needs the budget to maintain its activities such as sales, production, financing, material purchase etc. Budget also communicates managements plans throughout organization, allocates recourses, and coordinates activities. Budget helps managers to do all works one by one properly because when a budget is in hand a manager can know what he has to do the targeted goal.

Budgets also uses in two very important managerial role- planning and control. Planning develops a goal, then prepares different types of budgets to achieve goal. Control is done by managers to do the works properly to achieve the goals. For a good control a good budget is very much necessary. By look at the budget a managers can do the controlling appropriately. When a manager will have a well planned budget in his hand it will be very easy for a manager to control, because from the budget he can easily realize that is the works are done or not done what was budgeted before.

Responsibility Accounting:

Responsibility accounting is that a manager should be held responsible for those items and only those items that the managers can actually control. Budget can easily define that for what reason which manager is responsible. Budget also tells that in which sector which manager should works. Which managers are responsible for cost, which managers for revenue it can easily fixed by budgets?

The Self-Imposed Budget:

It is very impotent for managers to make budget as much as realistic can be made. If the budget is made very realistic it will be very good for the company. So, it is always very important to make a budget very realistic. The success of a budget is mainly depends on how the budget is made. It is very important to make a budget by all level managers. If all level managers do the work properly it will be very easy for the company to reach to its goal very easily. A self imposed budget is prepared with full corporation and participation of managers at all the level.

All level managers of a company should be participating to make a good budget. Without the participating of all level managers its not possible to make a good budget. All level managers in a company play very important roles for a company. Lower level managers know how to do the daily works properly. Lower level managers also know much more than a higher level manager is the targeted budget is right or wrong. So, its very much important for a company to listen to the lower level managers when preparing a budget. Higher level managers also set the goals and objectives of a company. So, its also very important to listen to the higher level managers.

There are some advantages of this budget. The advantages are given below:

Budgets done by lower level managers are more relievable and accurate in production levels.

When all level managers participate to do this kind of big work like budgeting, it will motivate them, most of the time the goals are achieved.

If a budget can not achieved then a managers can not said that the budget was not achievable, because this budget has been done by listen to him.

There are some disadvantages of this self imposed budget. Those are given below:

Sometimes the lower level managers can set very easy budget for their own benefits that is very easily achievable.

If the higher level managers makes their budget by look at the lower level managers budgets sometimes the budget become unrealistic.

Advantages of Budget: Budget tells all the organization about what a management wants. Actually a budget communicates with the all level employees in an organization.

If there is a budget in hand then a manager will have to think about the future plan. He can not waste his time by doing daily works only. This time he must follow a target to fulfill his future

needs.

From the budget a manager can easily find out that where the resources of the company should be used. It helps the manager to use the resources effectively.

Budget helps the organization to coordinates all the activities in a same line. By look at the budget everyone in the company will go for the same direction.

Budget also tells a company about the companys goals and objectives.

Budget helps the managers to evaluate the performance of all level employees.

Disadvantages of Budget: Sometimes the budget can be very difficult and may be unachievable. This can makes the people of the organization unhappy and when they do their works they will not look at the budget.

By giving difficult budget top management want to blame or create pressure on lower level employees. This makes the employee unhappy and increases the turnover rate of skilled employees. This will keep a company in a big trouble.

Unrealistic or hardly achievable budget can define wrong goals and objectives of the organization.

The Master Budget: The master budget contains of a number of separate but independent budget. All the planning of a company is done by different types of budget. Altogether this is called master budget. There are different types of budget:

1. Sales Budget. 2. Production Budget. 3. Direct Materials Budget.

4. Direct Labor Budget. 5. Manufacturing Overhead Budget. 6. Ending Finished Goods Inventory Budget. 7. Selling and Administrative Expense Budget. 8.Cash Budget.

Direct Labor Budget: The direct labor budget provides the framework for planning staffing needs and costs. The direct labor budget is developed from the production budget. Direct labor requirements must be computed so that the company will know whether sufficient labor time is available to meet the budgeted production needs. By knowing in advance how much labor will be needed throughout the budget year, the company can develop plans to adjust the labor force as situation requires. Companies that neglect to run the risk of facing labor shortages or having to hire and lay off workers at awkward times. Erratic labor policies lead to insecurity, low morale, and inefficiency. Once production needs are known, the direct labor budget must be prepared so that the company will know whether sufficient labor time is available to meet those needs. The direct labor budget is typically expressed in both direct labor-hours and in dollars. Translating the direct-labor requirements into spending can lead to complications if there is overtime or if there is some sort of guaranteed employment policy.

Manufacturing Overhead Budget: The manufacturing overhead budget contains all manufacturing costs other than the costs of direct materials and direct labor (which are itemized separately in the direct materials budget and the direct labor budget). The information in the manufacturing overhead budget becomes part of the cost of goods sold line item in the master budget. Also, the total of all costs in this budget are converted into a per-unit overhead allocation, which is used to derive the cost of ending finished goods inventory, and which in turn is listed on the budgeted balance sheet. The manufacturing overhead budget lists all production costs other than direct materials and direct labor. Manufacturing overhead costs should be broken down by cost behavior for budgeting purposes. The variable portion of manufacturing overhead is assumed to be proportional to budgeted activity and the fixed portion is assumed to be constant in total. Under the assumption that depreciation is the only significant non-cash manufacturing overhead expense, the manufacturing overhead expense can be converted to a cash flow basis by backing out of the total any depreciation charges. This budget is typically presented in either a monthly or quarterly format. It varies form company to company.

Ending Finished Goods Inventory Budget: The ending finished goods inventory budget calculates the cost of the finished goods inventory at the end of each budget period. It also includes the unit quantity of finished goods at the end of each budget period, but the real source of that information is the production budget. The primary purpose of this budget is to provide the amount of the inventory asset that appears in the budgeted balance sheet. If you do not intend to create a budgeted balance sheet, then there is no need to create an ending finished goods inventory budget. The ending finished goods inventory budget contains an itemization of the three main costs that are required to be included in the inventory asset under both generally accepted accounting principles and international financial reporting standards. These costs and their derivation are: 1. Direct materials. The cost of materials per unit (as listed in the direct materials budget), multiplied by the number of ending units in inventory (as listed in the production budget). 2. Direct labor. The direct labor cost per unit (as listed in the direct labor budget), multiplied by the number of ending units in inventory (as listed in the production budget). 3. Overhead allocation. The amount of overhead cost per unit (as listed in the manufacturing overhead budget), multiplied by the number of ending units in inventory (as listed in the production budget). If there are many types of products expected to be in ending inventory, it may be too difficult to calculate this budget on an item-by-item basis. If so, an alternative is to create an approximate cost per unit based on general classifications of inventory types. This budget details the amount and value of ending inventory on the budgeted balance sheet. The unit product cost from this budget is also used to compute the cost of goods sold for the budgeted income statement. The details of the computations will depend upon whether variable or absorption costing is used. Managers often want budgets on an absorption costing basis since that is the basis that will ordinarily be used to report results to outsiders. Data for the computations in this schedule are found in the direct materials, direct labor, and manufacturing overhead budgets.

Selling and Administrative Expense Budget: Companies must also plan for selling and administrative costs. These costs also consist of variable and fixed components. The expected quarterly sales are multiplied by the variable cost per unit. Total variable expenses are added to the fixed items. Some fixed items may be the same each quarter. Other fixed costs can change over time. The selling and administrative budget lists the anticipated non-manufacturing expenses for the budget period. This budget is usually made up of many smaller individual budgets negotiated with various managers having sales and administrative responsibilities. Setting appropriate budget limits for selling and administrative functions is one of the most difficult problems in management accounting and is just beginning to be understood.

Cash Budget: Cash is an essential resource of the organization. Without an adequate supply of cash to meet obligations as they come due, a business will quickly crash. Even the most successful businesses can get caught by cash crunches attributable to delays in collecting receivables, capital expenditures, and so on. These types of cash crises can usually be avoided with a little planning. The cash budget provides the necessary tool to anticipate cash receipts and disbursements, along with planned borrowings and repayments. This is also an estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations and whether too much cash is being left in unproductive capacities. A cash budget is extremely important, especially for small businesses, because it allows a company to determine how much credit it can extend to customers before it begins to have liquidity problems. For individuals, creating a cash budget is a good method for determining where their cash is regularly being spent. This awareness can be beneficial because knowing the value of certain expenditures can yield opportunities for additional savings by cutting unnecessary costs. For example, without setting a cash budget, spending a dollar a day on a cup of coffee seems fairly unimpressive. However, upon setting a cash budget to account for regular annual cash expenditures, this seemingly small daily expenditure comes out to an annual total of $365, which may be better spent on other things. If you frequently visit specialty coffee shops, your annual expenditure will be substantially more. The cash budget should be broken down into time periods that are as short as feasible in order to alert management to problems that may occur due to fluctuations in cash flows. As anyone with a checking account knows, it is quite possible to have a positive overall cash flow during a period and yet be overdrawn at some point during the period. The cash budget is composed of four major sections: a. The receipts section. b. The disbursements section. c. Cash receipts, plus the beginning cash balance, less cash disbursements results in cash excess or deficiency. If a deficiency exists, additional funds must be arranged for. If an excess exists, previous borrowing can be repaid or short-term investments made. d. The financing section of the cash budget provides a detailed account of the borrowing and repayments projected to take place during the budget period. It also includes a detailing of interest payments. Conclusion: Budgeting is always very important for every organization. It helps the organization in different way. If the company have a budget then it will be very easy for the company to achieve the goals and objectives. Besides a budget its very difficult to plan properly. Sometimes a unrealistic budget can creates problem to achieve the companys goals and objective but without a budget it is really impossible to run an organization smoothly. So, management should try their level best

to makes a good budget to reach their goal quickly.