What is the main purpose of a master budget?

A master budget serves as a comprehensive financial plan for an organization, incorporating all aspects of its operations. Its main purpose is indeed to integrate various departmental budgets into a single cohesive financial framework. This consolidation facilitates coordinated planning, resource allocation, and performance evaluation across different departments, ensuring that all parts of the organization are aligned toward common financial and operational goals.

Furthermore, a master budget enables management to see an overview of the organization's anticipated revenues and expenditures, allowing for better financial control and decision-making. It often includes both operating and financial budgets, encompassing sales, production, and capital expenditure plans, which together guide the organization in achieving its financial objectives for a specific period.

In contrast, while reporting actual versus forecasted performance, providing breakdowns of revenue sources, and analyzing variances in cash flow are important financial responsibilities and activities, they do not encapsulate the primary purpose of a master budget. These functions may be derived from or influenced by the master budget but are not its main intent. The master budget is fundamentally about creating an integrated financial strategy that drives the entire organization forward.