Project – Master Budgeting

Project – Master Budgeting

Introduction

The master budget gathers smaller elements in the organization’s budget and puts them together to provide the management with a holistic view of its finances. The master marketing budget includes marketing expenses, after-sale services costs, and other departments’ budgets, all put together to create a comprehensive budget. One of the advantages of a master budget is that it provides a comprehensive overview of its position. By putting together these elements, the management can determine how much the company earns and spends. On the flip side, the master budget lacks specificity, and it is challenging to tell how much every department spends. Also, a master budget is difficult to read and update since it includes estimates from different departments that are hard to separate.

Marketing Department Master Budget

Particulars	June
Consulting Revenue	205,000
Less sales commission	10,500 (5% June sales)
Less cost of sales	92,250 (45% of June sales)
Net consulting Revenue	102,500 (i)
Salaries and benefits	48,000
Website operation	21,000
Online advertising expenses	15,000
Other Mis. expenses	3,5000
Total Expenses	87,500 (ii)
Net Department Expenses	15,000 (i-ii)

Schedule for Expected Cash Collections

June Collections	Amount
April May June Total cash collection	19,000 140,000 41,000 200,000 (i)

Expected Cash Disbursements

Salaries and benefits Website operation Online advertising expenses Other Mis. Expenses Sales commission (5% of sales) Subcontractor expenses (45% of sales) Total cash disbursements	48,000 21,000 15,000 3,500 10,000 90,000 187,500 (ii)
Net Impact on Cash	12,500 (iii)

Recommendations

A master budget in a company includes all low-level expenses, financial statements, cash flow forecasts, and a financial plan for the future. It acts as a company’s central planning tool by providing an overview of a company’s budget. On the one hand, the operating budget part of the master budget gives a detailed account of a company’s income-generating activities, including revenue and expenses. On the other hand, the financial budget offers a glimpse into the cash inflows and outflows in a company and other elements that show a company’s financial position.

Companies consider the master budget an essential planning tool within the organization. While participating in the planning process, an organization’s top management assesses the company’s profitability and asset-liability. The master budget is used to conduct such an assessment. Additionally, the master budget is used to measure performance in an organization (Khatri & Raju Bikram 2010). That includes setting departmental accountability and control, which improves performance in the long run.

Use of the master Budget in the Forecasting Process

One role of budgets in the forecasting process is the sizing of the objectives of a firm in the form of financial indicators. The process starts with highlighting the essential elements down to other departments, following the hierarchical level. The data used in budgets are based on the last accounted books and financial statements in a firm (MAN, Mariana, and Loan, 2010). Based on the available data, the firm can then determine if the budgets indicate whether the firm’s performance is improving or not.

Managers also monitor and control budgetary results to reduce deviations from budgeted for objectives. That is why managers draw sub-budgets based on periodical financial performance to ensure efficient control. Henceforth, managers integrate time-based budgetary results with the real-world situation., Needless to mention, budgets are not cast in stone hence are meant for regular changes depending on the demands of the real-world.

Managerial implementation of master budgets also allows managers to express the company’s objectives using financial terms. That allows managers to have total control of a firm’s resources. For instance, based on the master budget results, the manager may decide to cut production costs while increasing the efficiency of a firm’s activities (MAN, Mariana, and Loan, 2010). Nonetheless, practicing this form of the organizational budgeting system has its limits. For example, it takes time to process budgets since they undergo a long circuit system. Besides, there is a need for more labor input, which costs the firm significantly.

The master budget also helps the company determine its immediate labor needs in the short run. After determining such elements as the production cost and sales forecasts, managers use the master budget to determine the number of employees required to actualize the forecasts (MAN, Mariana, and Loan, 2010). Such information is essential to secure the firm from going into unexpected labor shortages and making the necessary adjustments to its labor needs in the future. The direct labor segment in the master budget is also crucial in planning plant shutdowns to allow essential activities such as cleaning.

The use of the Master Budget in Coordinating Marketing Campaigns

            Budgeting is also crucial in a company’s marketing campaign since it links the marketing strategy with the expected outcomes of a campaign. If, for instance, the goal of a company is to grow by 20% yet the marketing campaign budget is only enough to print business cards, the management is likely to get disappointed. Thus, the company needs to create an agreeable marketing plan among the executive, sales, and marketing teams.

            A marketing budget also determines the promotional mix the firm can afford. Once a budget has been created, the firm is aware of the resource constraints it operates. Depending on resource availability, the firm can decide whether to engage in advertising, public relations, direct or digital marketing (Shim & Siegel, 2009). Once the company has decided on the promotional mix to use and the allocations to each type of marketing activity, it determines the type of activities that will require out-of-pocket spending. To prepare a detailed marketing plan, the firm will research by contacting suppliers or comparing online prices to get the best offers (Shim & Siegel, 2009). The detailed marketing plan also allocates each employee’s work hours and the goals they are expected to accomplish. In the long run, these features will give the company a clear picture of the total cost required to execute a successful marketing campaign.

A budget may also help estimate the impact of a marketing campaign. Before conducting a marketing campaign, it may be difficult to tell its potential impact. That can be determined once the campaign starts, and the firm can now compare the results to the impact on the target audience (Shim & Siegel, 2009). In the absence of such information, there are other pieces of information an organization can use marketing goals to estimate the impact of the strategy. This also allows the company to adjust the campaign according to the company’s objectives. Also, a budget helps the organization determine the size of the marketing campaign necessary to attain the goals of the organization.

Use of Budget to Evaluate Marketing Department’s Performance

Marketing managers use budgets to measure actual organizational performance. First, the budget provides significant variance metrics such as budgeted revenue or expenses. For instance, if the variance revenue is higher than budgetary estimates or the actual expenses are less than the budgeted amount, that is a favorable result (Piercy, 2014). In the reverse scenario, whereby revenues are less than the budget or the expenses are more than budgeted, the business is in an unfavorable position. That is why it is crucial to monitor budgets to eliminate significant variances constantly.

After identifying the variances, the next step is to analyze the variance. No important business insights can be realized if the firm fails to identify the causes of the variances to improve the sustainability of a business. Analyzing variances will give the company both short-term and long-term fixes to the current problems it faces. For instance, the prices of a company’s products may need to be increased to cover an unfavorable variance (Khatri & Raju Bikram 2010). Besides, unfavorable variances may result from increased input costs, thus the need to look for alternatives.

Finally, analyzing a budget offers an insight into the performance of a budget and what should be done to revise a budget. Budget revisions include trimming expenses or re-allocating expenses depending on variance results (Piercy, 2014). Variance results may also be used to get the budget on track in case of significant divergence from initial plans.

Conclusion

The marketing budget sets out how much money is allocated to the marketing function and its use. It is formulated based on various metrics, including the firm’s objectives, rival budgets, and the previous year’s results. Regardless of the approach used, a safety buffer is a critical component of the marketing budget since it provides crucial leads to the performance of a marketing campaign. The size of the marketing budget is determined by some factors, such as a company’s financial position. Companies with low profits or poor cash flow problems may need to restrict their budgets to the level that the business can afford. Also, a marketing campaign’s responsiveness helps the company adjust the marketing budget to be effective. A master marketing budget is a crucial element in ensuring an effective marketing campaign.

References

MAN, P. D. M., & Ioan, C. (2010). The Use Of Budgets In Forecasting the Activity Of The         Firm. Internal Auditing and Risk Management, 1(17), 25-38.

Shim, J. K., & Siegel, J. G. (2009). Budgeting basics and beyond. Hoboken, N.J: John Wiley & Sons.

Piercy, N. (2014). Marketing Budgeting (RLE Marketing): A Political and Organisational            Model. Routledge.

Khatri, & Raju Bikram (2010). Master Budgeting of Herbs Producing and Processing Co. Ltd      (Doctoral dissertation, Tribhuvan University).

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You are the managerial accountant at Reliable Company. You have been assigned to support the marketing department and manage its master budget. The marketing department is responsible for the following:

Managing the firm’s marketing
Hiring subcontractors
Selling the consulting expertise to smaller outside firms
The department’s expenses are as follows:

Salaries and benefits of $48,000/month
Website operations of $21,000/ month
Online advertising expenses of $15,000/month
Miscellaneous expenses of $3,500/month
The sales forecast for its consulting services is as follows:

April: $190,000
May: $200,000
June: $205,000
The department pays a sales commission of 5%, and this is paid in the following month. Subcontractor expenses are estimated at 45% of sales and are paid the month after they are billed. Consulting fees are collected 20% in the month of sale, 70% in the following month, and 10% in the second month following sale.

Refer to the attached schedules.

Develop a master budget for the marketing department.

This task includes the following:

Completing the attached schedules for a master budget for the marketing department
Supporting schedules for cash disbursements and collections
Analyze additional needs and resources based on those budgets. Make recommendations based on those budgets.

Respond to the following for this assignment:

Develop the marketing department’s master budget.
Prepare a schedule of expected cash collections.
Make recommendations based on those budgets.