Master Budget and Budgeting Techniques for Alpha HPA Limited

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
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Executive Summary:
The current report would provide a brief overview of the different elements of master
budget. The second section would focus on comparing the top-down and bottom-up
approach to the budget process and accordingly, the most suitable approach for Alpha HPA
Limited would be considered. Finally, the report would shed light on developing the
budgeted income statement for the concerned organisation for 2019 based on the actual
data disclosed in its income statement in 2018. From the analysis of bottom-up and top-
down budget approaches, the elements of the master budget could be prepared so that the
future operations of the business organisations could be supported adequately. By analysing
these two approaches, the top-down budget approach is deemed to be favourable for Alpha
HPA Limited, as it would aid the management of the organisation in conducting its business
operations effectively. With the help of budgeted income statement, it becomes easy to test
whether the estimated financial outcomes of an organisation seem to be reasonable.

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Table of Contents
Introduction:............................................................................................................................ 3
a. Elements of the master budget:...........................................................................................3
b. Comparison of top-down and bottom-up approach to the budget process:......................13
c. Budgeted income statement for 2019 for Alpha HPA Limited:...........................................15
d. Comparison of the actual and budgeted income statements:...........................................16
Conclusion:............................................................................................................................. 18
References:............................................................................................................................ 20

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Introduction:
In the current era, all business organisations have to incur different types of costs
and this mandates the need for forming different types of budgets in order to keep track of
the actual and estimated expenses. In this context, Armitage, Webb and Glynn (2016)
advocated that a budget is a detailed future plan, which is usually denoted in formal
quantitative terms. Thus, budgets help in communicating the plan of the management
throughout the organisation. The aspect holds good for all ASX listed organisations and in
order to meet the purpose of this report, Alpha HPA Limited is taken into consideration. It is
an ASX listed organisation, which is involved in acquisition, exploration and mineral deposits
development in Australia and Indonesia (Collerinacobalt.com.au 2019).
This report would provide a brief overview of the different elements of master
budget. The second section would focus on comparing the top-down and bottom-up
approach to the budget process and accordingly, the most suitable approach for Alpha HPA
Limited would be considered. Finally, the report would shed light on developing the
budgeted income statement for the concerned organisation for 2019 based on the actual
data disclosed in its income statement in 2018 and accordingly, the impact of the changes
owing to the projections made would be analysed.
a. Elements of the master budget:
In the words of Barr and McClellan (2018), master budget is a plan developed to
manage the manufacturing and sales activities of an organisation for fulfilling profit and cash
flow objectives. In order to develop a successful master budget, the different elements of
the master budget need to be prepared in the initial stage accurately. In this way, master

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budget is deemed to be realistic; however, it is not complacent. The master is generally
represented in either monthly or quarterly format and thus, it covers the full accounting
year of an organisation. More precisely, a master budget acts the tool of central planning
that a management team utilises in directing the activities of an organisation along with
judging the performance of various responsibility centres. It is necessary for the top
management in reviewing various iterations of the master budget along with including
modifications until a budget is arrived at for accomplishing the desired outcomes (Baiman
2014). The master budget consists of a number of elements, which are illustrated in the
form of a figure as follows:
Figure 1: Various components of the master budget
(Source: Noreen, Brewer and Garrison 2014)
The above elements in the figure are discussed briefly as follows:

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Sales budget:
The most crucial component of the master budget is deemed to be sales budget, as
it paves the path for the preparation of other elements associated with the master budget.
By multiplying the selling units with the estimated per unit price, the total sales revenue for
the period is calculated (Butler and Ghosh 2015). The influence of sales budget is either
direct or indirect on the other elements of master budge as well. This is because the overall
sales figure obtained from the sales budget is used in the form of a base figure in the
budgets of the other components such as production budgets, pro-forma income
statement, schedule of customer receipts and others. As the other master budget elements
depend on sales budget, the expected selling price per unit and volume need to be
predicted with adequate care, which mandates the employment of reliable forecast
techniques (Otley 2016). In opposition, the master budget would not be effective for control
and planning. The following format is used for sales budget:
Table 1: Format of sales budget
(Source: Horngren and Harrison 2015)
Production budget:
Production budget provides an overview to the business owners regarding the
number of units to be manufactured for meeting selling needs and ending inventory