Joe Collagen is the CEO of a small retail business that sells a skin-smoothing lotion and has been operating for several years. He keeps meticulous records of his actual operating activities, including monthly sales, purchases and operating expenses, as well as the related cash receipts and payments. However, Joe has never prepared a master budget for the business. He comes to you for help and says, 'My profits have been slowly decreasing and I don't know why. Also, sometimes when I least expect it, the business runs short of cash and I have to invest more into it. I've heard that preparing a master budget is a good thing to do, but I don't know what is involved or where to begin.'
Required:
Prepare a report to the CEO that:
a explains what budgets and projected financial statements are included in a master budget b clearly specifies how he would use the information from his previous actual operating activities to develop each of these budgets and the projected income statement.