What is the main purpose of a master budget in performance evaluation?

• A. To forecast long-term market trends for strategic planning.
• B. To assign blame for underperformance.
• C. To maximize short-term profits irrespective of resource constraints.
• D. To plan and coordinate resources, set targets, and provide a benchmark to compare actual performance.

Answer: (D)

The question tests how budgeting is used to evaluate performance by providing a coordinated plan and a benchmark. A master budget brings together all the planned activities—sales, production, operating expenses, capital and cash flow—into a single, cohesive plan for a future period. It sets targets for revenues and costs and lays out the resources required to achieve them, creating a baseline against which actual results can be compared. This comparison, or variance analysis, is what enables managers to see where performance is on track or off track and to take corrective action.

This isn’t about forecasting long-term market trends or strategic direction beyond the budget period. It isn’t about assigning blame, but about planning, control, and alignment of resources. It also isn’t about chasing short-term profit without regard to constraints; the budget accounts for capacity, cash, and other limits to ensure targets are realistic. So the master budget’s core role is to plan and coordinate resources, set targets, and provide a benchmark for evaluating actual performance.