ACCA Applied Knowledge · Management Accounting · Budget preparation
In the budget preparation process, the principal budget factor (limiting factor) should be identified early because it:
The principal budget factor is the resource or demand constraint limiting the organisation's activity. It is identified early so that its budget is prepared first and the other budgets are built around it. It is often sales demand, but not always, since materials or labour may limit output.
- Adetermines which budget should be prepared first, as other budgets depend on itCorrect
- Bis always the sales demand of the business
- Cis the budget that is approved last by the board
- Dis the cost that is largest in the cash budget
Explanation
The principal budget factor is the constraint that limits activity, so the budget for it is prepared first and the other budgets are built around it. It is often sales demand but can be materials, labour or machine capacity, so the option saying 'always sales' is wrong.
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