Question

Which of the following lists the components of the master budget in correct chronological order?

A. Direct labor budget, production budget, cost of goods sold budget.
B. Sales budget, production budget, cash budget.
C. Sales budget, raw materials budget, production budget.
D. Cash budget, production budget, manufacturing overhead budget.

Answer 1

The chronological order of the components of the master budget is as follows: Sales budget, production budget, raw materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, cash budget.

Step-by-step explanation:

The correct chronological order of the components of the master budget is as follows:

1. Sales budget: This is the first step in the budgeting process and involves estimating the expected sales revenue for a specific period.
2. Production budget: Once the sales budget is determined, the production budget is prepared to plan the quantity of goods to be produced in order to meet the sales demand.
3. Raw materials budget: After the production budget, the raw materials budget is created to estimate the quantity and cost of raw materials needed for production.
4. Direct labor budget: The direct labor budget follows the raw materials budget and calculates the labor cost required for producing the goods.
5. Manufacturing overhead budget: Finally, the manufacturing overhead budget is prepared to estimate the indirect costs associated with production.
6. Cost of goods sold budget: This budget is typically prepared after the production budget and calculates the cost of goods sold based on the production information.
7. Cash budget: The cash budget is typically the last step in the master budget and provides an estimate of the cash inflows and outflows for a specific period.