Final answer:
The master budget comprises of operating budgets, which include budgets for sales, production, materials, labor, overhead, selling and administration, and cost of goods sold, and financial budgets, which encapsulate the cash budget, budgeted balance sheet, and cash flows statement.
Step-by-step explanation:
The master budget includes various individual budgets that collectively present a comprehensive financial action plan for a company. Typically, it comprises the operating budgets and the financial budgets. The operating budgets include the sales budget, production budget, direct materials budget, direct labor budget, overhead budget, selling and administrative expense budget, and the cost of goods sold budget. These budgets detail the income-generating activities of an organization. On the other hand, the financial budgets include the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows, which showcase the projected financial position and the expected cash inflows and outflows.
A simplified representation of a personal budget could be Budget = P₁ × Q₁ + P₂ × Q₂, where P and Q represent the price and quantity of items purchased. In a corporate setting, these principles are expanded to include the comprehensive planning of all company's financial dealings.