CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control
Which budget is prepared first, and acts as the starting point for the other budgets, when a manufacturing firm's sales demand is the principal budget factor?
The sales budget is prepared first when sales demand is the principal budget factor, because it is the constraint that limits activity. All other budgets such as production, materials and cash are derived from it, and the master budget is compiled last.
- AProduction budget
- BSales budgetCorrect
- CCash budget
- DMaster budget
Explanation
When sales demand is the limiting (principal budget) factor, the sales budget is prepared first. Production, purchase and cash budgets are derived from it. The master budget is prepared last by consolidating all functional budgets.
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