B3-M4 Budgeting

Question 1

What is the correct order in which budgets must be prepared?

Answer 1

Sales –> production –> DM, DL and OH budget (or COGS budget) –> Cash disbursement

Question 2

What’s the difference between master budget and flexible budget?

Answer 2

Master budget – “Annual budget” or a budget for operating performance “goals” for a period. Ex. What we need to produce/perform/achieve this year and what level of sales and costs to achieve that goal

Flexible budget – accounts for changes; can be prepared for any production level within a relevant range (hence “flexible”)