CMA Intermediate · Cost Accounting · Budget and Budgetary Control
In the sequence of preparing a master budget for a manufacturing company, which budget is normally prepared first once the principal budget factor is identified as sales demand?
The sales budget is prepared first when sales is the principal budget factor, because production, material, labour and overhead budgets all depend on it. The cash budget and budgeted financial statements are prepared afterwards, as they consolidate the operating budgets.
- ASales budgetCorrect
- BCash budget
- CBudgeted balance sheet
- DProduction cost budget
Explanation
When sales demand is the principal budget factor, the sales budget is prepared first and drives the production, purchase, expense and cost budgets. The cash budget and the budgeted balance sheet come later because they depend on the operating budgets.
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