What forms the backbone of a master budget?

The backbone of a master budget is comprised of specialized budgets from various departments within an organization. Each department typically creates its own budget focused on its specific operations, such as marketing, finance, human resources, or production. These departmental budgets collectively contribute to the overall master budget, providing a comprehensive financial plan that reflects the resources and expenditures needed to achieve the organization’s goals.

This approach ensures that every department's needs and activities are accounted for, allowing the organization to coordinate its financial planning effectively. By understanding how each department's budget fits into the bigger picture of the master budget, management can make informed decisions about resource allocation and align departmental objectives with the overall strategic vision of the organization.

The other options do not encapsulate the concept of the master budget as effectively. For instance, relying solely on last year's budget with adjustments could overlook current departmental needs and external market changes. Sales forecasts and competitive analysis are critical components, but they serve more as inputs into the budgeting process rather than forming the foundational structure of the master budget itself. Similarly, budgets handed down from top management are important, but they often require input and validation from specialized departmental budgets to ensure accuracy and relevance.