A master budget is projected financial plan. It displays the consolidation of the functional budgets to present the overall impact of the projected operational activities on the profitability of the organization as whole. It is a statement showing the estimation of revenue, costs and profit (loss) for the organization during the budget period.
The following are usefulness of master budget:
The prime advantage of master budget is that it helps to coordinate all the other budgets and to devise the short term objectives of an organization. Any conflict between department is resolved by the master budget as it is the consolidation of the functional budgets.
Master budget is good medium of communication between the various departments as it consolidates the functional budgets
Master budget is the basis for planning. Budgeted financial statement are prepared on the basis of a master budget
The master budgets incorporate the targets of every department and therefore acts as a measure of performance evaluation
Problems associated with master budget are as follows:
Master budget is based on forecasting and therefore subject to uncertainties
Master budget is prepared on the basis of certain assumption that may not hold true in reality