---
title: "Master budget"
description: "What a master budget is, its operating and financial budgets, the order in which they are prepared from the sales budget, and a production budget example."
canonical: https://ledgeriano.com/glossary/master-budget
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Master budget

> What a master budget is, its operating and financial budgets, the order in which they are prepared from the sales budget, and a production budget example.

A master budget is the complete, linked set of budgets a business prepares for a coming period, usually a year split into months or quarters. It starts with the sales budget and flows through production, materials, labour, overhead, selling and administrative costs into a cash budget, a budgeted income statement and a budgeted balance sheet.

The operating budgets come first. Sales sets volumes; the production budget adds desired closing stock and deducts opening stock; materials and labour budgets follow from production and the bill of materials; overhead and selling and administrative budgets complete the cost picture.

The financial budgets turn the plan into cash and position. The cash budget times collections from customers and payments to suppliers and staff and shows when financing is needed. The budgeted income statement and balance sheet show the result and the position the plan leads to.

Because every schedule feeds the next, one change in the sales forecast ripples through the whole plan, which is why spreadsheets with hand-linked tabs break easily. Ledgeriano's master budget plans cover sales, cash collections, production, materials usage and purchases from bills of materials, direct labour, overhead, ending inventories, cost of goods sold, selling and administrative costs and a cash budget with financing, and can generate a draft operating budget. Start with the [budget template](https://ledgeriano.com/templates/budget-template) or the [management accounting guide](https://ledgeriano.com/guides/management-accounting).

```
Units to produce = Budgeted sales + Desired closing stock - Opening stock
Materials to purchase = Materials for production + Desired closing materials - Opening materials
```

## Example: a quarterly production budget

Sales are budgeted at 1,000 units in Q1 and 1,200 in Q2. The company wants closing stock equal to 20% of next quarter's sales and starts Q1 with 200 units.

| Q1 | Units |
| --- | --- |
| Budgeted sales | 1,000 |
| Add desired closing stock (20% × 1,200) | 240 |
| Less opening stock | 200 |
| Units to produce | 1,040 |

### Why does the master budget start with sales?

Because sales volume drives almost everything else: production, purchases, staffing and cash collections. A wrong sales forecast makes every other schedule wrong.

### How is a master budget different from a flexible budget?

The master budget is prepared for one planned level of activity. A flexible budget restates it for the activity actually achieved, to evaluate performance.

Guide: https://ledgeriano.com/guides/management-accounting