Assignment Instructions
A master budget provides an overarching view of an organization’s goals and expectations for the future. Due to its all-encompassing nature, there can be many components which are found in a master budget, each related to a different business operation or department, including the Human Resources department. For this Application, you will analyze the master budget and its components in greater detail. In a 2- to 3-page paper, address the following:
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- For each section of the master budget, describe its purpose, the type of information that would be contained in that particular section, and the importance of that budget section to the success of the organization.
- Consider the role of the Human Resource department. Discuss the importance of the master budget to the success of the HR function. What if any conflicts or potential inconsistencies might exist between an HR budget and the master budget? Be specific.
- Comment on why each budget piece must be created in that specific order. For example, why does the sales budget have to come before the production budget?
Master Budget Components
Introduction
In big organizations, there exists a need to always be thoroughly planned and organized in matters to do with current steps as well as future ones to enable effective achievement of goals and targets. One of the major tools that organizations utilize for this purpose is the formulation of standard operational budgets. In some cases, there arises the need to use a master budget, which is an expensive form of budget and therefore not used frequently. A master budget is an elaborate business strategy that captures an organization’s production levels, capital investments, expected future sales, future expenses incurred, required loans that should be acquired, loans that are to be serviced and the organization’s purchases (Shim, Siegel & Shim, 2012). This paper elaborates on the different parts of the master budget and the importance of the different parts of the master budget.
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Financial Budget
This is one of the most important parts of the master budget which illustrates an organization’s current financial position (Shim, Siegel & Shim, 2012). The financial budget highlights the cash budget and also gives a picture of the availability of money to the company. The financial budget also elaborates on expected cash inflows and the cash outflows. This budget is important as it allows an organization to make proper plans regarding current and future operations.
Sales Budget
This budget captures the sales that the organization expects to make in the budget period, both in terms of units and expected cash from the sales (Koochakpour & Tarokh, 2017). The sources of information for the sales budget usually come from different departments for the purposes of aggregation of what the organization wish to dispense. The sales budget is usually presented in short periods, such as quarterly or monthly in order to facilitate actionable decision-making Koochakpour & Tarokh, 2017).
Production Budget
The production budget works out the number of units that an organization should produce in a given period of time. The production budget is gotten from the combination of the targeted number of finished goods inventory and the sales budget. This is an important planning tool as it enables the organization to be prepared in terms of financial budgeting on what to acquire for the purposes of achieving the production level.
Direct Materials Budget
The direct materials budget highlights the necessary materials and items that an organization need to acquire in order to meet its production needs (Shim, Siegel & Shim, 2012). The budget is typically presented in a quarterly or monthly basis and if it is for a manufacturing organization, this type of budget section contains all the costs met by the company in line with production.
Direct Labor Budget
This section of the master budget defines the number of hours needed in order to meet the pre-determined production level. Some direct labor budgets elaborate on the production hours needed for the different labor categories in order to end up with the total items to be produced in the entire time period. It also determines where layoff of employees is necessary.
Selling and Administrative Expense Budget
This section of the master budget captures the budget for all the expenses not related with the manufacturing department. This is important as it can have a direct negative consequence on the production budget if it is greater than the latter. It is not always necessary but it can be of importance to companies which have little competition can therefore dedicate some money to determining the size of this budget.
The Human Resource Department
The human resource is one of the most significant departments in an organization. This is because this department is charged with determining the staffing needs of the company which is an essential element in the organization in terms of labor resource (DeCenzo, Robbins & Verhulst, 2016). The human resource ensures that the workers taken in by the company meet the required skills and expertise. This is done by running a high quality recruitment process that ensures that the job descriptions, job evaluations and job specifications are well stated and that are duly met by the hired candidates (DeCenzo, Robbins & Verhulst, 2016).
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The human resource is also in charge of determining the staffing needs of the company and therefore ensures the necessary layoffs are made whenever the need arises. The department is also in charge of determining the salaries of employees as well as the staff’s capacity building needs.
Role of Master Budget in Human Resource Department
The master budget informs the department in terms of the required labor that is required to meet the production demands of the organization. This is especially brought out by the direct labor budget section in the master budget. The financial budget informs the human resource department of the available financial resources and therefore helps it in determining such aspects as salaries, bonuses and the number of layoffs or recruitments that the company can support (Shim, Siegel & Shim, 2012). The administrative budget is significant in elaborating to the department the needs that the budget can support in the given period to meet the administrative requirements of the department.
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Conclusion In conclusion, it is clear that the master budget is an essential strategic and management tool within an organization. The different components that the master budget captures help an organization to plan itself in terms of production needs and running costs. The overreaching importance of the master budget also means that it is a useful tool in guiding the functions of the human resource department. This is in regards to the staffing needs of the company as well as the administrative requirements.
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