To: Richard Jones Subject: Key Components of a Master Budget I hope this finds you well. When speaking about setting up a master budget there are some key components that you will need to look at. I want to discuss with you here what those key components are and how they will help your master budget. To start off with, let's break down what a master budget is. A master budget is simply a design that will help connect your other budgets. In your master budget, you will start with sales, followed by production, direct materials, direct labor, factory overhead, capital expenditures, cash, and then you will end with the preparation of budgeted financial statements. Your first component of the master budget is sales. Your sales budget will show the estimated units and dollars you plan to sell for a certain time period. You will obtain this by analysis of economic and market conditions, business capacity, and advertising plans that you foresee over said time period. The second component is the production budget. The production budget is simply how much it will cost to produce said sales budget. The next component is your direct materials and direct labor budget. Direct materials will show the estimated costs for direct materials that will be needed to produce the estimated production production and the direct labor will show much labor will be needed to produce those materials. After direct materials and direct labor there is the factory overhead component