 in this presentation we will discuss budget options first we're going to go through the components of the master budget we took a look at this in a prior course in prior presentations in detail in terms of going through each component of the master budget want to take a look and review those components of the master budget we did so last time in terms of a static type of budget we're going to be focusing here on other options including a flexible budget so we have the sales budget that's the first component that will start out when we're creating basically the master budget type process remember the end line the end level the bottom line that we're going to be getting to will be the buzzed budgeted financial statements the balance sheet the income statement also important to have the budgeted cash statement to have a cash flow budget the budgeted income statement the budgeted balance sheet the income statement and the cash flow are kind of the activity the performance type things we're considering usually the things we consider most when when looking at a budget what are we going to do what's the action plan that we're going to do the balance sheet of course telling us where we will end up at the end of that process now remember the budget needs to be done in some specific order because we have to know some information before we can move forward to other components of the budget the first thing we start off with is typically going to be the sales budget we got to know how many units we're going to sell what the sales amount will be before we can do other components of the budget then we can go to the production budget then we've got the direct materials budget the direct labor budget and the overhead budget then we can move to the capital expenditures budget the selling and administrative budget and finally then we go to the cash budget so the cash budget given us that cash flow type budget what's going to be that the actual inflows and outflows of cash then we've got our financial statements being the balance sheet and the budgeted income statement so the budgeted balance sheet the budgeted income statement the budgeted statement of cash flows so remember when we think about the whole budgeting process for a master budget type process we would start with the sales budget we need to know that first we're ending up in essence with the budgeted financial statements the budgeted balance sheet the budgeted income statement statements of cash flows budget options we typically have the fixed budget that's what we concentrated on last time and went through each of these components with those items on the fixed budget and then we have the flexible budget that's what we're going to concentrate on more here a flexible type of budget before we do so however let's take a look at the problems with a fixed budget so what are going to be the issues with a fixed budget why might we need some other option why might we use some other options such as a flexible budget if we consider the fixed budget this will be the structure of the fixed budget we will typically have we're gonna have the sales we're gonna have the cost of goods sold this of course concentrating on the income statement so we're concentrating on the final result on the income statement the timing type of account for a fixed type of budget so we're concentrated on the bottom line financial statements specifically income statement so we got the sales cost of goods sold then we've got the overhead items that we've got the selling expenses we've got the general administrative expenses that gives us the total expenses and finally the income from operations now we can imagine what would happen if we see the time process go by now so the budgeting time period has passed what are we going to do then we're going to compare the budgeted numbers to the actual numbers so then if we run the actual numbers for the actual income statement the performance statement the income statement the timing accounts how did we do over a time period and then we're going to take the difference otherwise known as the variances between the budget and actual numbers and we'll consider what those differences will be now we can look at this difference and we can say okay the actual is greater on the sales than then it is budgeted so that's going to be a favorable difference for the sales and we can go and say that's good and then we could say okay the cost of goods sold direct materials direct labor these are expected