Two main components of the master budget?

• A. Sales budget and production budget
• B. Cash budget and pro forma statements
• C. Marketing budget and HR budget
• D. Operating budget and financial budget

Answer: (D)

The master budget is a comprehensive plan that links what the company expects to earn from operations with how it will finance and manage its cash flow. The two main components are the operating budget and the financial budget.

The operating budget includes all budgets that drive day-to-day operations and the income statement, such as sales, production, direct materials, direct labor, overhead, and selling and administrative expenses. These budgets show what the company expects to spend and earn from its core activities.

The financial budget focuses on cash resources and financing, including the cash budget and the pro forma financial statements (like pro forma income statement and balance sheet). This part translates operating results into cash implications and shows liquidity and financial position.

Together, these two parts form the master budget by aligning operating plans with financing plans. The other options mix components that fit inside these main parts but don’t capture the two broad, overarching categories.