CP 6-4 Objectives of the master budget Domino\'s Pizza L.L.C. operates pizza del

Question

CP 6-4 Objectives of the master budget Domino's Pizza L.L.C. operates pizza delivery and carry-out restaurants. The annual report describes its business as follows: We offer a focused menu of bigh-quality, value-priced pizza with three types of crust (Hand Tossed, Thin Crust, and Deep Disb), along with buffalo wings, bread sticks, cheesy bread CinnaStix, and Coca-Cola products. Our hand-tossed pizza is made from fresh dough produced in our regional distribution centers. We prepare every pizza using real cheese, pizza sauce made from fresh tomatoes, and a choice of high-quality meat and vegetable toppings in generous portions. Our focused menu and use of premium ingredients enable us to consistently and efficiently produce the bighest-quality pizza Over the 41 years since our founding, we have developed a simple, cost-efficient model We offer a limited menu, our stores are designed for delivery and carry-out, and we do not generally offer dine-in service. As a result, our stores require relatively small, lower- rent locations and limited capital expenditures How would a master budget support planning, directing, and control for Domino's? Resened. May ox be copied, scamsed oe duplicated, in whole or in pas. Due to elecoronic nghs, some third party coetent may be suppressed from the eBook ndlor eChaps.Edtonal review has ntens does so erially affect the overall earning experience.Cengage leaming reserves the right to æmove additioeal coenent at any time if subs equen rights restctcesquire it

Explanation / Answer

Simply stated, a budget is a projection of a firm’s future course of action in quantitative and/or financial terms.

A master budget is an integrated set of operating and financial budgets that project the activities of a firm for a future period. It serves as a planning, directing and control tool in the hands of the management. At the end of a period the actual results can be compared with the master budget and corrective actions can be taken.

Components of the Master Budget:

Master budgets are comprised of two major categories of supporting budgets called Operational budgets and Financial budgets.

The operational budgets are the plans for the functional departments. They are

1.    Sales Budget in quantity and dollars, for the different products.

2.    Production Budget covering all the product variants

3.    Direct Material Purchases Budget in quantities and dollars

4.    Direct Labor Budget with hours and cost

5.    Overhead Budget for variable and fixed overheads

6.    Selling and Administrative Expenses Budget, which can be subdivided into product wise/area wise sub budgets

7.    Cost of Goods Manufactured Budget

The Financial Budget comprises the following sub-budgets:

1.    Schedule of projected cash collections from receivables

2.    Schedule of projected cash payments to suppliers

3.    Schedule of cash disbursements for administrative and selling expenses

4.    Cash Budget, subdivided into monthly budgets.

5.    Budgeted Income Statement

6.    Budgeted Balance Sheet

As can be seen, the component budgets cover all aspects of the functioning of a firm and culminate into the financial budgets, which yield the income statement and the balance sheet.

Budget preparation is done by involving the functional personnel, which aids in proper planning of the activities of each functional areas, so that the organizational goals are achieved.

The budgets so prepared can be used by the functional heads to direct the activities in their area. Budgets are an authorization to commit resources and help in implementation of the plans.

Continuous control over the activities can be exercised by breaking the annual budgets into monthly/ weekly budgets and then comparing the actuals with the budgets. Along with the preparation of the master budget, the formats for reporting and its periodicity can be laid out.

As Dominos operates delivery and carryout services it could introduce customer category wise cost budgets for selling expenses.

Thus, a master budget would aid in planning, directing and controlling the activities of a firm, and Dominos can use it to its advantage.

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