Question

Which of the following statements is true regarding master budgets?

Multiple Choice

• Most companies exclude selling and administrative expenses from the master budget because they are period expenses.

• They can be used to estimate a company’s need to borrow money in the future.

• They usually include a cash budget and a budgeted income statement, but not a budgeted balance sheet.

• Generally speaking, they are prepared for manufacturing companies, but not merchandising companies.

Answer 1

Solution:

They can be used to estimate company's need to borrow money in future

It is a costlier business strategy that records expected future sales, productions levels, purchases, future expenses incurred, capital investments, and even loads to be acquired and repaid. One of the ultimate aim of master budget is the financing plann. It include future money requirements.

Rest of the options are wrong because a budgeted balancesheet is also prepared , There is no exclusion for selling and administrative expense , Both manufacturing and merchandising companies used to develop master budgets.