Required Explain the concept of “master budget” and critically discuss its benefits to an organization. 4.Income tax payments are made by Ivory Garments in the first month of eachquarter based on income for the prior quarter. Ivory's income tax rate is 30%.Ivory's net income for the first quarter of 2022 is projected to be $1,350,000.5.Ivory Garments uses a calendar year reporting period. Ivory Garments, a rapidly expanding garments producer based in Jordan, is in theprocess of formulating plans for 2022. The Director of Marketing has completed his2022 forecast and is confident that sales estimates will be met or exceeded.The following forecasted sales figures show the growth expected and will provide theplanning basis for other corporate departments.SALESSALES$4,600,0005,000,0004,600,0005,400,0006,000,0006,600,000JanuaryFebruaryJulyAugustSeptemberOctoberNovemberDecember$7,000,0007,000,0007,400,0007,400,0007,000,000MarchAprilMayJune7,800,000The Financial Controller of Ivory Garments has been given the responsibility forformulating the cash flow projection, a critical element during a period of rapidexpansion. The following information will be used in preparing the cash analysis:1. Most of the customers of Ivory Garments have a good track record in makingthe payments when due. The company collects 20% of its billings in the monthof the sale, 50% in the month after the sale and 30% in the second month afterthe sale. Uncollectible accounts are insignificant and should not be consideredin the analysis.2. The purchase of fabric is Ivory Garments' largest expenditure; the cost of theseitems equals 50% of sales. The company receives 60% of the fabrics onemonth prior to sale and 40% during the month of sale. Prior experience showsthat accounts payable are paid by Ivory Garments one month after receipt ofthe purchased fabrics.Administrative expenses are projected to be $4,280,000 for 2022. All of theseexpenses are incurred uniformly throughout the year except the property taxeswhich are paid in four equal instalments in the last month of each quarter. Thecomposition of administrative expenses is:Salaries$ 960,000Promotion320,000480,000720,000600,0001,200,000$4,280,000Property taxesInsuranceUtilitiesDepreciationTotal3.

A budget is an estimation of expenses as well as revenues which will be earned and incurred during…

Answered: Explain the concept of “master budget”…

Business

Accounting

Explain the concept of “master budget” and critically discuss its benefits to an organization.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Master Budget

A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.

Sales Budget and Selling

A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.

Question

Required

Explain the concept of “master budget” and critically discuss its benefits to an organization.

4.
Income tax payments are made by Ivory Garments in the first month of each
quarter based on income for the prior quarter. Ivory's income tax rate is 30%.
Ivory's net income for the first quarter of 2022 is projected to be $1,350,000.
5.
Ivory Garments uses a calendar year reporting period.

Ivory Garments, a rapidly expanding garments producer based in Jordan, is in the
process of formulating plans for 2022. The Director of Marketing has completed his
2022 forecast and is confident that sales estimates will be met or exceeded.
The following forecasted sales figures show the growth expected and will provide the
planning basis for other corporate departments.
SALES
SALES
$4,600,000
5,000,000
4,600,000
5,400,000
6,000,000
6,600,000
January
February
July
August
September
October
November
December
$7,000,000
7,000,000
7,400,000
7,400,000
7,000,000
March
April
May
June
7,800,000
The Financial Controller of Ivory Garments has been given the responsibility for
formulating the cash flow projection, a critical element during a period of rapid
expansion. The following information will be used in preparing the cash analysis:
1. Most of the customers of Ivory Garments have a good track record in making
the payments when due. The company collects 20% of its billings in the month
of the sale, 50% in the month after the sale and 30% in the second month after
the sale. Uncollectible accounts are insignificant and should not be considered
in the analysis.
2. The purchase of fabric is Ivory Garments' largest expenditure; the cost of these
items equals 50% of sales. The company receives 60% of the fabrics one
month prior to sale and 40% during the month of sale. Prior experience shows
that accounts payable are paid by Ivory Garments one month after receipt of
the purchased fabrics.
Administrative expenses are projected to be $4,280,000 for 2022. All of these
expenses are incurred uniformly throughout the year except the property taxes
which are paid in four equal instalments in the last month of each quarter. The
composition of administrative expenses is:
Salaries
$ 960,000
Promotion
320,000
480,000
720,000
600,000
1,200,000
$4,280,000
Property taxes
Insurance
Utilities
Depreciation
Total
3.

Definition Definition Summary of all functional budgets such as lower-level budgets, cash flow forecasts, budgeted financial statements, and financial plans of an organization for the upcoming period. A master budget provides the financial information of the company on a periodic basis such as monthly, quarterly, half yearly or annually.

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