COST ACCOUNTING

MASTER BUDGETING AND ITS IMPACT ON

CORPORATE SECTOR

SUBMITTTED BY
B. Sri Aruna
B.com LLB., - B section
16th January 2024

SUBMITTED TO
Dr. Muralidhara KG
Assistant Professor & Course In-charge
Ramaiah College of Law, Bengaluru
INTRODUCTION:

In a company, every department has a different function and of course all of the cost they require,
and each of them prepares a budget, predict all of their expenses and how much the incomes
obtained. It includes financial statements, future income and financial statements, future income,
and financial planning estimates made by the company. Every company has set targets and goals
for each year, and the company prepares a plan of action to achieve them through these budgets.

When a company has experienced the merger and acquisition process, then to see what the
company gains from the transaction of acquiring the target company the master budget has to be
prepared. For example, every company has a Human Resources and Administration department.
Therefore, when a company is acquired, this would result in two staff members in the same
category. In this point, the company must decide who to keep and who to let go of for the
betterment budget of the business. Next, the management must prepare the budget before making
any expansion plans. And then, the master budget has detailed information about the future
financial statements and cash flows estimated after considering current loan rates, cash flows and
limits.

LITERATURE REVIEW:

1. MASTER BUDGET IN COST ACCOUNTING Samantha Sentosa, Atma Jaya

Makassar University, Makassar, Indonesia-

This paper addresses a pertinent concern within the business landscape, wherein certain
companies exhibit a lack of comprehension regarding the pivotal role played by a well-structured
budget plan in orchestrating their operational endeavors. A deficiently prepared budget not only
jeopardizes the financial viability of an organization but also leaves it vulnerable to uncertainties
surrounding profit and loss. Consequently, the motivation behind this literature review is to
elucidate the imperative nature of companies adopting a master budget that comprehensively
incorporates capital and revenue aspects. The ultimate goal is to safeguard against potential
losses in sales and fortify the financial resilience of the enterprise.

Emphasizing the qualitative data type, this paper employs a qualitative research methodology to
underscore the effectiveness of the master budget in formulating succinct short-term plans and
steering the implementation process with precision. Through a critical examination of relevant
literature, this review seeks to establish a robust foundation for understanding the intricate
dynamics involved in the integration of a master budget, elucidating its pivotal role in not only
ascertaining financial health but also in providing strategic direction to the organization.

2."Exploring the Significance of Master Budget Formation in Corporate Organizations: A

Comprehensive Analysis" by Kiran Kafle

This paper delves into the pivotal aspect of constructing a master budget, serving as a crucial
tool for implementing budgetary control in corporate settings. The primary objective is to
facilitate the coordination of diverse business functions within the organization. The study
underscores the relevance of the budgetary process within a specific private company, aiming to
demonstrate its importance. This research holds relevance for company executives and chartered
accountants, providing valuable insights to enhance the efficiency of their budgeting plans for
forthcoming years. The findings suggest that the selected company can anticipate favorable
outcomes by the conclusion of the accounting year. Nevertheless, prudent attention to financial
sources is advised for company managers to address potential cash deficiencies.

RESEARCH METHODS

The type of research used in the paper is interpretative research, which is based on assumption,
also known as contemporary research. We summarize all our opinions and how much we know
about the master budget in the paper.

Data Types

The data type used in the paper is qualitative data which is not represented by numbers and is
often gathered from observations, reports, and other printed materials. This data generally can
only be observed and recorded to produce information. This data cannot be transferred into
numerical form. It is a secondary form of data.
STATEMENT OF THE PROBLEM:

1. What is master budgeting. How it influences the managerial activities of the company.
2. What components are included in the calculation of master budgeting by western
international Pvt Ltd.
3. As strategic cornerstone how master budgeting fosters informed decision making,
optimal resource allocation and a resilient framework for substantial finance growth.
4. What are the pros and cons of using master budgeting in the corporate sector.

OBJECTIVES OF THE PROBLEM:

1. Setting financial goals: Exploring master budgeting within the company yields valuable
insights and skills essential for proficient financial management.
2. It helps in forecasting and planning for various departments, it supports optimal resource
utilization, enhancing efficiency across the organization.
3. Master budgeting serves as benchmarks, facilitating the assessment of actual performance
against planned targets, fostering improved decision-making and accountability.
4. Monitoring and controlling costs, master budgeting enables companies to identify
variance and take corrective actions, ensuring adherence to budgetary constraints.
5. A well-constructed master budget enhances transparency, instilling confidence in
investors, creditors and stakeholders, contributing to a positive organizational image.
6. It provides a foundation for informed decision making, offering a comprehensive
overview of financial implications associated with different choices.
7. Anticipating potential challenges, master budget enables proactive risk management,
allowing organizations to adapt to changing conditions.

SCOPE OF THE MASTER BUDGET:

 The master budget is integral to corporate financial planning, encompassing diverse

aspects like sales, production, and capital expenditures. Serving as a consolidated
roadmap, it aligns functional areas to achieve organizational goals, fostering coordination
among departments.
 By coordinating individual budgets, it ensures that each department's goals contribute to
overarching strategic objectives, enhancing adaptability in a dynamic business
 environment. The master budget aids in forecasting by incorporating sales forecasts and
expense projections, enabling organizations to anticipate challenges and capitalize on
opportunities.
 Efficient resource allocation is facilitated by the master budget, optimizing the use of
capital, labor, and materials based on strategic priorities for maximum efficiency. The
master budgeting process involves risk identification and analysis, enabling the
development of contingency plans to navigate uncertainties.
 The master budget's significance lies in strategic decision support, aiding senior
management in making informed decisions by providing a holistic view of financial
implications. Transparent communication instills confidence among stakeholders,
inspiring trust in the company's ability to meet financial obligations. The focus on
operational efficiency and cost control contributes to competitiveness and profitability.
 The scope of this budget includes financial statements, cash flow forecasts, financial
plans, and capital investments. Master budget accounting serves as a tool for management
to identify goals well in advance, providing a rough guideline for near-term expectations.
Caution is essential in its preparation as it directly impacts the operational performance of
the entire organization.

LIMITATIONS OF THE PROBLEM:

 While estimating cash or making a cash budget, it gets challenging to forecast the net change
in working capital from one period to another.
 A similar issue arises with an inventory. If the company has more sales, this will increase
inventory, resulting in negative working capital.
 Generally, while arranging the budget, to achieve the fix budget, the employees lower the
sales and aiming for the higher expenses because of the management forces the organization
to adhere to the budget, with the result deviating from the company’s goals.
 Having a master budget refers to a lot of additional overhead expenses. In result, the
company needs an additional financial analyst who could find a solution and prepare a
detailed report on deviations.
 Managers are more focused on achieving the budget goals; as their incentives are tied to it,
they ignore new opportunities.
 Not easy to modify is one of the supplementary problems of master budget. Even a small
change of the data requires a lot of steps, thereby shaking the entire organizational planning.

RECOMMENDATIONS AND FINDINGS:

 Ensure that the master budget aligns with the company's long-term strategic goals,
considering market trends, competitive landscapes, and internal capabilities.
 Foster collaboration among various departments, especially finance, operations, sales,
marketing, and human resources, to gather accurate data and insights for comprehensive
budgetary projections.
 Incorporate flexible budgeting models that can adapt to dynamic market conditions, using
scenario planning and sensitivity analysis to address unforeseen circumstances.
 Establish key performance indicators (KPIs) aligned with budgetary goals for effective
monitoring and evaluation, facilitating timely adjustments to enhance performance.
 Embrace advanced financial technologies and integrated software solutions to streamline the
budgeting process, reduce errors, and provide real-time visibility into financial data.
 Invest in the continuous training and development of finance professionals to keep them
informed about industry regulations, technological advancements, and market dynamics.
 Implement automation for real-time visibility into financial data, allowing finance
professionals to focus on strategic decision-making rather than routine tasks.
 Incorporate a thorough analysis of market trends and competitive landscapes into the master
budgeting process to ensure the realism of financial planning.
 Integrate scenario planning to assess the potential impact of different variables on the
budget, enabling the organization to make informed decisions and proactively respond to
changes.
 Stay abreast of regulatory changes and adhere to compliance standards, ensuring that the
master budget aligns with evolving financial regulations and standards.

Bibliography:

BOOKS:

 KC, RAJU BIKRAM. Master Budgeting of herbs Producing and Processing Co. Ltd. 2010.
PhD Thesis. Tribhuvan University.
 Budget: Planning and control by Glenn A. Welsch

Website:

 https://www.wallstreetmojo.com/master-budget/
 https://www.investopedia.com/terms/c/cashflow.asp