Steps in forming a master budget:

- Add up all fixed budget costs like advertising, employee salaries, etc.- v

- Add up all flexible costs like factory overheads, material, etc.

- Add up cushion for excesses (say10% of flexible totals but it depends from business to business)

- Combine together fixed budget cost, flexible budget costs and cushion cost

- Trim any components if necessary. If your master budget exceeds your expectations, or your company's ability to make a profit, you may need to trim some of the expenses your company will incur

These steps involves creating budget strategies, and it might be numbered as follows :1-  Analyze the internal and external environment.

2-  Form strategic goals.

3- Create long-term plans.

4- Create short-term plans.

5- Create master budget.

But if we are to consider the financial side of budget formulation it might be like so:

1-      Analyze historic data on revenues and expenditures.

2-      Preform revenues estimations.

3-      Preform  expenditures estimations ( for both capital and O&M budget).

4-       Draft the annual budget.

5-      Discuss and review the draft budget by management.

6-      Approve the budget.