Master Budget is a collection of all lower level budgets and provides a great route to the management to plan for the future. The main purpose of the master budget is to make sure that at the end of the time period for which the budget was made; the actual results do not deviate too much. If the actual results have deviated a lot, then management will input certain controls over the processes and procedures to keep the thing on the right track. So, it also works as a control tool to keep the things under control.
Master budget can be made for a month, a quarter or for the whole year. It all depends over the management’s working style and decision making process. Usually, following lower level budgets make up the master budget:
If the organization is a large one, then management can make separate master budget for each of its strategic business unit (SBU) so that each SBU adheres to the overall organization’s objectives, goals and mission. In today’s modern accounting and ERP (Enterprise resource planning) software, this is very easy to integrate budgets for each unit and head which helps a lot in the creation of various types of reports at the disposal. The usage of financial ratios with budgets helps the decision makers in developing a reasonable budgets because budgets which does not follow past trends often provides no value to the decision makers and serve just as a piece of paper.