Question

Which of the following regarding Master Budgeting is true?

a. The manufacturing overhead budget is typically prepared before the production budget.
b. The first budget a company prepares in a master budget is the production budget.
c. When preparing a direct materials budget, the units of raw material needed to meet production should be added to desired ending inventory and the beginning inventory for raw materials should be subtracted to determine the amount of raw materials to be purchased.
d. The cash budget is usually prepared after the budgeted income statement.

Answer 1

c. When preparing a direct materials budget, the units of raw material needed to meet production should be added to desired ending inventory and the beginning inventory for raw materials should be subtracted to determine the amount of raw materials to be purchased.

Step-by-step explanation:

The master budget refers to the budget in which the expenses, sales, purchases, are recorded

It can be sales budgets, purchase budgets, etc that comes under the operating budget

While preparing the direct material budget, the raw material required to be purchased should be find out by using the following formula

= Ending inventory balance + cost of sales - beginning inventory balance

Or we can say

Cost of goods sold = beginning inventory + raw material purchase - ending inventory

hence, the correct option is c.

Answer 2

Statement A, C and D

Step-by-step explanation:

a. All the direct expenses budget is prepared in order to compute direct material, direct labour and other manufacturing overheads in order to compute the production budget cost. As all these are essentially required in order to make a production budget.

b. The first budget is usually the revenue or sales forecast budget.

c. Direct material to be bought = Direct Materials required in production + Closing inventory to be maintained - Opening inventory already available.

d. Cash budget not only comprises of inflow, but outflow is also as important as inflow. When all the incomes and expenses are budgeted then cash budget is prepared.