 Hello in this lecture we're going to work on a master budget and we're going to start off with the sales budget over here. We're going to have our information on the left hand side and then we're going to enter that information into the blue area over here. The master budget can be a bit intimidating because of one the amount of information that is given in a problem like this and two because of the amount of information we have to input can be very large. However, if we do it basically in chunks step by step and there is a step by step process in order and order that we have to do it in basically starting of course with the sales budget. I also want to point out that we are going to do a master budget and we're thinking about manufacturing companies and the reason for a manufacturing company type budget is often because it's the largest type of budget we're going to have to think about because we're going to have to think about purchasing and inventory. So obviously if you were working on something if we had a budget for something that was not a manufacturing company then we would still have a budget but we would take out of course a lot of the manufacturing stuff probably a more simplified type of budget. Okay so the first thing what we'll have in our information is we want to know where we're at at a point in time where the budget is going to be for. So we're going to be budgeting for in this case July August and September. So that'll be the third quarter and the information we're generally going to need to budget looking forward is we're going to need what happened basically in the past and we're going to need some general rules in terms of how we're going to budget. So first we have what happened in the past so that's going to of course be the balance sheet as of 630. So that's going to be our beginning numbers that we're going to start off with and then we're going to use those of course to budget to the future. So the balance sheet is going to be over here and then a problem like this will generally have a lot of other miscellaneous information including things like what we think our sales are going to be and our policies in terms of basically our collections and things like that. So we'll go through these things as we work through the problem as needed, talk about where they're generally going to be in a problem as well as where we might get them in real life. So a budget's going to have to start off with basically sales and that's because everything else is going to be generated from that. We can't budget anything else until we know how much we're going to we're going to receive in sales. So that has to be where we start and much of the sales budget is just going to be given to you when within a problem. So down here in this problem we have our July, August, and September. So we're taking July, August, and September and note a lot of times these problems will have basically a June and October type numbers in there because we're going to need those to make some of our estimates. So remember that we are working on the third quarter July, August, and September and we're going to give data for before that time possibly after that time in order to help us with parts of the budget as we go. And so they're giving us basically the sales in units here. So remember we sell things, we sell inventory if you want to make up some type of widget that we're selling. That's fine, we're making something and selling it. These are the number of units that we're going to sell and we're going to sell them at $24. So that's going to be given in the problem in real life. Of course, we'd have to project that in some way and that would be part of the process of the budget. But any kind of problem on it generally going to be given within the problem. So $20,006, $19,006, and $20,001. So let's go up here. I'm just going to plug those numbers in here. $20,006, $19,006, and $20,001. Notice I'm not putting a comma in there or anything. Of course, I'm formatted the sales of being formatted already in terms of number format. I'm going to sum that up by saying equals SUM and I'm just going to sum that up. The $26,006, plus the $20,001 is going to add up to a total of $60,003 for the third quarter. Now that's units and we're going to talk about now the dollar amount, which will be $24. That's how much we sell these for. Therefore, we're going to multiply this out now. So $20,006 units in July times $24 would be equals $20,006 times $24 and enter where I said that you probably thought I was going to do that in my head there. But no, we're going to do that here. Let's say this equals the $19,006 units that we're going to sell times the $24 that we sell them for. And that'll give us the $47,400. And then in September, we're going to say this equals the $20,001 times the $24 that we sell them for. And so this is how many units we're going to sell. And now we're going to sum up the dollars sales that we believe that we're going to have. So this is going to equal the sum of. And notice, sometimes I'll try to format that. We could format these in terms of dollars over here as well, just so we can see the fact that when we're separating units from dollars, which can be a bit confusing in these types of problems. All right. Step two is to make the production budget. And you might be thinking, well, the production, how many units are we going to product that produce? That's what the production budget is going to tell us. And you might be thinking, well, we already figured that out, right? We're going to have 60,003 in sales. We're going to have to produce that many throughout the quarter. However, note that we might have some units on hand already. And we might want to have a cushion basically to have some extra units in case we sell more than we thought. We don't want to be short on the sales. So we're going to start off with the budget units for each month. And of course, we've already calculated those numbers. Those numbers are going to equal the 20,006 for July. And then for August, we have the 19,6 I'm going to select tab to go to the next sale and September is the 20,001. And that so we're just bringing those numbers down. So of course, this is how many we think we're going to sell. So that's what we're going to start off with in terms of how many do we think we're going to produce. Then we're going to try to decide basically, do we want an ending balance in the budget? Meaning do we want to work into the budget that will have some added extra leftover units after we sell our 20,006 in inventory, just in case our sales are greater than that. So how would we come up with that number? We're going to have to scroll down and see that will generally be given within the data. This shouldn't be kind of like a policy that we'll have within the company saying how much do we do we want in the ending inventory. And in this problem, it says that Indian finished goods percent of next month's expected unit sales. So what that means is basically we want to predict next month's unit sales and have an Indian finished goods inventory equal to 80% of next month. So that's how much kind of cushion we want as of the end of the month in case sales are higher than we expected them to be. And so that's pretty large variable. So we're going to say then that next month we can think that we're going to start with next month's budgeted sales for July. So for July, then we're thinking about August's sales