 Hello in this lecture we're going to talk about the master budget we're going to go through the sales budget the production budget and the materials budget at the end of this we will be able to list the components of the master budget to create the sales budget to create the production budget and create the materials budget so we're going to start off we just want to look at the list and the activities that go through the master budget for a production company something that a company that produces things and this is similar to many types of budgets when we think about the most basic type of budget many people think of well let's take a look at the income statement how we did last year you know basically divided by 12 make some adjustments and that will be our budget for the months going forward to the next year that's the most basic kind of components of the budget and that's how any budget kind of starts off we're going to look at last time's material what happened how did we perform and then make some adjustments into the future as we get more sophisticated of course we want to think about other things into the future other than just past performance like what's the economy going to be like what are some changes what's going to be the effect on the on the sales and our expenses and whatnot going forward we're going to look at a production budget a production budget for a company that produces things being more complex in many ways and being more linear in the way we have to build it because of the fact that we're producing things and the same principles will apply to many different types of budget so we're going to have to start off with the sales budget that's the first place we need to start off no matter what type of budget we have how much are we going to sell in terms of units of sale if we produce inventory and sell inventory we need to think about how many units we're going to sell and then how much revenue we're going to get on that even if we take it down to our personal budget we want to think about well how much are we going to earn in the future time period for many individuals and many business businesses the amount we may earn may be fairly constant that's why we can take last year's performance and basically budget it forwards but it may change as well for many people it may change our salary may vary and that's the first thing we want to take a look at because we're going to base the rest of the budget on that then once we know how many units we're going to sell we want to come up with the production budget how much stuff are we going to produce in terms of like inventory how many things do we need to produce and you might be saying well that's easy we know how many things we're going to sell therefore we're just going to take how many things we're going to sell that's how many we need to produce and that would be the case if it was like our first year of production and we didn't want and we thought we were going to be very exact in our numbers but we probably want to have a cushion to stuff we want to produce more than we're going to sell in case that we sell more than we thought we were going to sell and we also probably had stuff that we didn't sell last time we had a cushion from last time so we need to take those two things into consideration in terms of figuring out how many things we need to produce in order to meet the sales and these other kind of requirements that we want to have in terms of having a cushion in the inventory once we know how many things we're going to produce then we can think about how much material we need to produce them so let's say we're like making guitars or something we know how many guitars we want to make now we need to figure out how much basically wood we want to put in how much wood do we need to buy in terms of the production of the guitar same kind of inventory type of questions and we have the same kind of problems it's not just that we need to buy the amount of wood in order to produce that many guitars we need to figure out do we want to have an ending inventory of wood leftover do we have any wood that's still in the inventory here same thing in terms of direct labor which is a bit more straightforward we're going to say how much direct labor will it take then to make these many units of production that we need to produce and the overhead all the other stuff that's going to be involved what's going to be the budget for the overhead to produce this many units this isn't directly tied out it doesn't have to be happy next but the capital expenditures do we want to buy new larger pieces of equipment and things like this we need to plan out whether we have the cash flow and whether we have we can finance any more large expenditures and then the selling and administrative budget these are going to be more the period costs these are usually more costs that we can do kind of what we think about in our traditional budget look at what happened last time and project it forward because they're usually more fixed in nature rather than variable in nature along with the production then we can do the cash budget the cash flow that will happen and then we can kind of finally think about our budgeted balance sheet that we always think about our budgeted income statements and our budget statement of cash flow so here's the statement so we're going to create and again most of us think about the budget oftentimes in terms of the income statement here here's how we're going to perform in the future in terms of the income statement but if we break this out into this process we can do this first then then you know create our standard balance sheets from this projections all right so we're going to start off with the sales budget so sales budget here and we'll just break through these first three and then we'll talk about the rest of the budgets at a later time so sales budget we're going to say that we're going to do this for the quarter of july august in september in july we're going to say in units we're going to sell 20,600 units now how do we come up with that number if it's a book problem we're going to have to give us that number and if it's real life then we're going to have to project well how much did we produce last time period what's our traditional sales for july what's the market like in july and all this kind of stuff and come up with the amount of numbers that we're going to produce in units we'll multiply that times how many we're going to charge per unit and that will of course give us the dollar revenue so we get the unit revenue we got the dollar revenue we'll do the same thing for august we're going to say we're going to produce 19,600 units what do we come up with that number again we're going to have to project it out and think how do we do last year what's the market like how things can happen but then we just multiply that times our 24 and we come up with the dollar amount for seventy four hundred same for september we're just going to project the 20,100 book problem we'll give us that real life we'll have to project that in some way probably a very significant process to do that and we're going to have the 24 the sales price that gives us the 40 to 400 totals then would be 60,300 units and we would have dollars in revenue of 1,447,200 in terms of revenue now that we know this we can move forward we need how much do we need to make how many units do we need to make if we're going to sell this many units and you might think well we need to make 60,300 if we're going to sell 60,300 but once again think about the idea that we may have units that are already in here from last month and we may want to have a cushion because we don't want to have exactly 60,300 units we might sell more than that we don't want to have a shortage in case we do better than we thought in terms of just the budget just the plan here so those two things being in the factor when we then calculate the production budget so we have the sales budget up here now we're going to say the production budget how many how much stuff in units do we need to produce producing guitars how many guitars do we need to produce for this quarter we're going to break it out by month so we're going to say July we're going to say we're going to first do a calculation in terms of