The master budget is prepared in the sequence shown in illustration 6-2.The operating budgets are developed first, beginning with the sales budget. Then the financial budgets are prepared. We will explain and illustrate each budget shown in 6-2 expect the capital expenditure budget. This budget is discussed under the topic Capital Budgeting in Chapter 10.
A case study of Hayes Company will be used in preparing the operating budgets. Hayes manufactures and sells a single product, Kitchen-mate. The budgets will be prepared by quarters for the year ending December 31,2002. Hayes Company begins its annual budgeting process on September 1,2001,and it completes the budget for 2002 by December 1,2001.