Answer (B) is correct . The capital investment budget may be prepared more than a year in advance, unlike the other elements of the master budget. Because of the long-term commitments that must be made for some types of capital investments, planning must be done far in advance and is based on needs in future years as opposed to the current year’s needs.
Answer (A) is incorrect because The ending inventory budget is based on the current production budget.
Answer (C) is incorrect because The pro forma income statement is based on the sales budget, expense budgets, and all other elements of the current master budget.
Answer (D) is incorrect because The pro forma balance sheet is based on the other elements of the current master budget.
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